**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

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**FORM 10-Q**

 
| **(Mark One)**                                   |
|--------------------------------------------------|
|                                             |
| **ý**                                       |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                             |   |   |
| **For the quarterly period ended July 31, 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 by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

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

 

**APPLICABLEONLY TO CORPORATE ISSUERS:**

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practicable date.

 

Common stock, $0.20 par value:  808,872,064****shares as of September 7,2004

 

 

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**PART I. FINANCIALINFORMATION**

 

**ITEM 1. FINANCIALSTATEMENTS**

 

**ADCTELECOMMUNICATIONS, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS—UNAUDITED**

 

**(Inmillions)**

 
|                                                                             |   | **July 31,  2004** |    | **October 31,  2003** |   |
|----------------------------------------------------------------------------------|--------|--------------------|---------|----------------------------|--------|
| **ASSETS:**                                                                      |   |               |    |                       |   |
|                                                                             |   |               |    |                       |   |
| CURRENT ASSETS:                                                                  |   |               |    |                       |   |
| Cash and cash equivalents                                                        |   | $                  | 413.9   |                       | $      | 718.7 |   |
| Available-for-sale securities                                                    |   | 7.4                |    | 26.7                       |   |
| Accounts receivable, net                                                         |   | 152.4              |    | 91.3                       |   |
| Unbilled revenue                                                                 |   | 31.4               |    | 28.0                       |   |
| Inventories, net                                                                 |   | 112.2              |    | 57.6                       |   |
| Assets of discontinued operations                                                |   | 21.7               |    | 60.1                       |   |
| Prepaid and other current assets                                                 |   | 39.8               |    | 44.2                       |   |
|                                                                             |   |               |    |                       |   |
| Total current assets                                                             |   | 778.8              |    | 1,026.6                    |   |
|                                                                             |   |               |    |                       |   |
| PROPERTY AND EQUIPMENT, NET                                                      |   | 240.5              |    | 176.6                      |   |
| ASSETS HELD FOR SALE                                                             |   | 6.9                |    | 25.1                       |   |
| RESTRICTED CASH                                                                  |   | 19.8               |    | 15.6                       |   |
| GOODWILL                                                                         |   | 175.7              |    | —                     |   |
| INTANGIBLES, NET                                                                 |   | 73.9               |    | 3.4                        |   |
| AVAILABLE-FOR-SALE SECURITIES                                                    |   | 23.2               |    | 19.5                       |   |
| OTHER ASSETS                                                                     |   | 35.8               |    | 30.1                       |   |
|                                                                             |   |               |    |                       |   |
| Total assets                                                                     |   | $                  | 1,354.6 |                       | $      | 1,296.9 |   |
|                                                                             |   |               |    |                       |   |
| **LIABILITIES AND SHAREOWNERS’ INVESTMENT:**                                |   |               |    |                       |   |
|                                                                             |   |               |    |                       |   |
| CURRENT LIABILITIES:                                                             |   |               |    |                       |   |
| Accounts payable                                                                 |   | $                  | 68.8    |                       | $      | 44.9 |   |
| Accrued compensation and benefits                                                |   | 57.0               |    | 45.1                       |   |
| Other accrued liabilities                                                        |   | 89.3               |    | 62.5                       |   |
| Income taxes payable                                                             |   | 23.8               |    | 18.9                       |   |
| Restructuring accrual                                                            |   | 34.0               |    | 29.6                       |   |
| Liabilities of discontinued operations                                           |   | 20.2               |    | 57.9                       |   |
| Notes payable                                                                    |   | 0.6                |    | 8.0                        |   |
|                                                                             |   |               |    |                       |   |
| Total current liabilities                                                        |   | 293.7              |    | 266.9                      |   |
|                                                                             |   |               |    |                       |   |
| PENSION OBLIGATIONS                                                              |   | 60.6               |    | —                     |   |
| LONG-TERM NOTES PAYABLE                                                          |   | 400.4              |    | 400.0                      |   |
| OTHER LONG-TERM LIABILITIES                                                      |   | 4.4                |    | 2.3                        |   |
|                                                                             |   |               |    |                       |   |
| Total liabilities                                                                |   | 759.1              |    | 669.2                      |   |
|                                                                             |   |               |    |                       |   |
| SHAREOWNERS’ INVESTMENT  (809.0 and 806.6 shares outstanding, respectively) |   | 595.5              |    | 627.7                      |   |
|                                                                             |   |               |    |                       |   |
| Total liabilities and shareowners’  investment                              |   | $                  | 1,354.6 |                       | $      | 1,296.9 |   |

 

See accompanying notes to condensedconsolidated financial statements.

 

2

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**ADCTELECOMMUNICATIONS, INC. AND SUBSIDIARIES**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS—UNAUDITED**

**(Inmillions, except per share amounts)**

** **
|                                        |   | **Three  Months Ended  July 31,** |   | **Nine  Months Ended  July 31,** |   |
|---------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                        |   | **2004**                          |   | **2003**                         |   | **2004** |   | **2003** |   |
| NET SALES:                                  |   |                              |   |                             |   |   |   |   |   |
| Product                                     |   | $                                 | 196.0  |                             | $      | 120.5 |   | $ | 440.6 |   | $ | 365.5 |   |
| Service                                     |   | 39.2                              |   | 31.7                             |   | 98.1 |   | 91.8 |   |
| TOTAL NET SALES                             |   | 235.2                             |   | 152.2                            |   | 538.7 |   | 457.3 |   |
|                                        |   |                              |   |                             |   |   |   |   |   |
| COST OF SALES:                              |   |                              |   |                             |   |   |   |   |   |
| Product                                     |   | 108.7                             |   | 67.6                             |   | 235.6 |   | 210.4 |   |
| Service                                     |   | 37.3                              |   | 27.6                             |   | 90.7 |   | 84.2 |   |
| TOTAL COST OF SALES                         |   | 146.0                             |   | 95.2                             |   | 326.3 |   | 294.6 |   |
|                                        |   |                              |   |                             |   |   |   |   |   |
| GROSS PROFIT                                |   | 89.2                              |   | 57.0                             |   | 212.4 |   | 162.7 |   |
|                                        |   |                              |   |                             |   |   |   |   |   |
| OPERATING EXPENSES:                         |   |                              |   |                             |   |   |   |   |   |
| Research and development                    |   | 18.0                              |   | 15.5                             |   | 48.0 |   | 51.4 |   |
| Selling and administration                  |   | 67.3                              |   | 36.6                             |   | 143.5 |   | 133.1 |   |
| Impairment charges                          |   | —                            |   | 0.2                              |   | 1.5 |   | 14.8 |   |
| Restructuring charges                       |   | 0.7                               |   | 5.6                              |   | 12.8 |   | 22.8 |   |
|                                        |   |                              |   |                             |   |   |   |   |   |
| Total Operating Expenses                    |   | 86.0                              |   | 57.9                             |   | 205.8 |   | 222.1 |   |
|                                        |   |                              |   |                             |   |   |   |   |   |
| OPERATING INCOME (LOSS)                     |   | 3.2                               |   | (0.9                             | )      | 6.6 |   | (59.4 | ) |
|                                        |   |                              |   |                             |   |   |   |   |   |
| OTHER INCOME (EXPENSE), NET                 |   | 0.3                               |   | (1.7                             | )      | 9.1 |   | (1.5 | ) |
|                                        |   |                              |   |                             |   |   |   |   |   |
| INCOME (LOSS) BEFORE INCOME TAXES           |   | 3.5                               |   | (2.6                             | )      | 15.7 |   | (60.9 | ) |
| PROVISION FOR INCOME TAXES                  |   | 0.3                               |   | —                           |   | 0.7 |   | — |   |
| INCOME (LOSS) FROM CONTINUING OPERATIONS    |   | 3.2                               |   | (2.6                             | )      | 15.0 |   | (60.9 | ) |
|                                        |   |                              |   |                             |   |   |   |   |   |
| DISCONTINUED OPERATIONS, NET OF TAX:        |   |                              |   |                             |   |   |   |   |   |
| Loss from discontinued operations           |   | (10.7                             | )      | (12.5                            | )      | (49.0 | ) | (25.1 | ) |
| Loss on sale of subsidiaries                |   | (6.8                              | )      | —                           |   | (9.3 | ) | — |   |
|                                        |   | (17.5                             | )      | (12.5                            | )      | (58.3 | ) | (25.1 | ) |
|                                        |   |                              |   |                             |   |   |   |   |   |
| NET LOSS                                    |   | $                                 | (14.3  | )                                | $      | (15.1 | ) | $ | (43.3 | ) | $ | (86.0 | ) |
|                                        |   |                              |   |                             |   |   |   |   |   |
| AVERAGE COMMON SHARES OUTSTANDING (BASIC)   |   | 808.9                             |   | 804.1                            |   | 807.9 |   | 802.7 |   |
| AVERAGE COMMON SHARES OUTSTANDING (DILUTED) |   | 811.7                             |   | 804.1                            |   | 813.3 |   | 802.7 |   |
|                                        |   |                              |   |                             |   |   |   |   |   |
| BASIC AND DILUTED INCOME (LOSS) PER SHARE:  |   |                              |   |                             |   |   |   |   |   |
| Continuing operations                       |   | $                                 | 0.00   |                             | $      | 0.00 |   | $ | 0.02 |   | $ | (0.08 | ) |
| Discontinued operations                     |   | $                                 | (0.02  | )                                | $      | (0.02 | ) | $ | (0.07 | ) | $ | (0.03 | ) |
| Basic and diluted loss per share            |   | $                                 | (0.02  | )                                | $      | (0.02 | ) | $ | (0.05 | ) | $ | (0.11 | ) |

 

See accompanying notes to condensedconsolidated financial statements.

 

3

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**ADCTELECOMMUNICATIONS, INC. AND SUBSIDIARIES**

 

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS—UNAUDITED**

**(Inmillions)**

 
|                                                                                |   | **Nine  Months Ended July 31,** |    |
|-------------------------------------------------------------------------------------|--------|---------------------------------|---------|
|                                                                                |   | **2004**                        |    | **2003** |   |
| OPERATING ACTIVITIES:                                                               |   |                            |    |   |   |
| Net loss                                                                            |   | $                               | (43.3   | ) | $ | (86.0 | ) |
| Adjustments to reconcile net loss to net  cash from operating activities:           |   |                            |    |   |   |
| Loss from discontinued operations                                                   |   | 58.3                            |    | 25.1 |   |
| Inventory and fixed asset impairments                                               |   | 1.4                             |    | 8.0 |   |
| Depreciation and amortization                                                       |   | 30.7                            |    | 43.1 |   |
| Change in bad debt reserves                                                         |   | (3.3                            | )       | 0.9 |   |
| Change in inventory reserves                                                        |   | 0.6                             |    | (1.7 | ) |
| Non-cash stock compensation                                                         |   | 2.1                             |    | 5.5 |   |
| Gain on sale of investments                                                         |   | (4.8                            | )       | (2.0 | ) |
| (Gain) Loss on sale of business and product  lines                                  |   | (2.8                            | )       | 2.8 |   |
| (Gain) Loss on sale of fixed assets                                                 |   | (0.3                            | )       | 1.5 |   |
| Other, net                                                                          |   | (1.1                            | )       | (0.5 | ) |
| Changes in operating assets and  liabilities, net of acquisitions and divestitures: |   |                            |    |   |   |
| Accounts and unbilled receivables                                                   |   | 5.7                             |    | 33.5 |   |
| Inventories                                                                         |   | (22.2                           | )       | 20.5 |   |
| Prepaid and other assets                                                            |   | (0.1                            | )       | 160.2 |   |
| Accounts payable                                                                    |   | (2.3                            | )       | (37.3 | ) |
| Accrued liabilities                                                                 |   | (0.2                            | )       | (125.7 | ) |
|                                                                                |   |                            |    |   |   |
| Total cash provided by operating activities  from continuing operations             |   | 18.4                            |    | 47.9 |   |
| Total cash used in operating activities  from discontinued operations               |   | (37.3                           | )       | (15.8 | ) |
| Total cash (used in) provided by operating  activities                              |   | (18.9                           | )       | 32.1 |   |
|                                                                                |   |                            |    |   |   |
| INVESTING ACTIVITIES:                                                               |   |                            |    |   |   |
| Acquisition, net of cash acquired                                                   |   | (293.9                          | )       | — |   |
| Divestitures, net of cash disposed                                                  |   | 3.7                             |    | 0.5 |   |
| Property and equipment additions                                                    |   | (10.4                           | )       | (65.5 | ) |
| Proceeds from sale of building                                                      |   | 10.8                            |    | — |   |
| Change in restricted cash                                                           |   | (4.2                            | )       | 154.5 |   |
| Sale of available-for-sale securities, net                                          |   | 19.6                            |    | — |   |
| Sale of long-term investments, net                                                  |   | (3.7                            | )       | 3.7 |   |
|                                                                                |   |                            |    |   |   |
| Total cash (used for) provided by investing  activities                             |   | (278.1                          | )       | 93.2 |   |
|                                                                                |   |                            |    |   |   |
| FINANCING ACTIVITIES:                                                               |   |                            |    |   |   |
| (Repayments) issuance of debt                                                       |   | (10.2                           | )       | 371.5 |   |
| Sale of warrants, net of purchased call  options                                    |   | —                          |    | (34.5 | ) |
| Common stock issued                                                                 |   | 3.3                             |    | 2.8 |   |
|                                                                                |   |                            |    |   |   |
| Total cash (used for) provided by financing  activities                             |   | (6.9                            | )       | 339.8 |   |
|                                                                                |   |                            |    |   |   |
| EFFECT OF EXCHANGE RATE CHANGES ON CASH                                             |   | (0.9                            | )  | (0.3 | ) |
|                                                                                |   |                            |    |   |   |
| (DECREASE) INCREASE IN CASH AND CASH  EQUIVALENTS                                   |   | (304.8                          | )       | 464.8 |   |
| CASH AND CASH EQUIVALENTS, beginning of  period                                     |   | 718.7                           |    | 278.9 |   |
|                                                                                |   |                            |    |   |   |
| CASH AND CASH EQUIVALENTS, end of period                                            |   | $                               | 413.9   |   | $ | 743.7 |   |

 

See accompanying notes to condensedconsolidated financial statements.

 

4

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**ADCTELECOMMUNICATIONS, INC. AND SUBSIDIARIES**

 

**NOTESTO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—UNAUDITED**

 

**Note 1 - Basis ofPresentation**

 

The interiminformation furnished in this report is unaudited but reflects all normalrecurring adjustments, which are necessary, in the opinion of our management,for a fair statement of the results for the interim periods.  The operating results for the three and ninemonths ended July 31, 2004, are not necessarily indicative of the operatingresults to be expected for the full fiscal year. These statements should beread in conjunction with our most recent Annual Report filed on Form 10-Kfor the fiscal year ended October 31, 2003.

 

*New Accounting Pronouncements.*  In January 2003, the FinancialAccounting Standards Board (“FASB”) issued Interpretation No. 46,“Consolidation of Variable Interest Entities, an Interpretation of AccountingResearch Bulletin No. 51,” which requires companies to consolidate certaintypes of variable interest entities.  Avariable interest entity is an entity that has inadequate invested equity atrisk to meet expected future losses, or whose equity holders lack any of thefollowing three characteristics:  (i)the ability to make decisions about the entity’s activities; (ii) theobligation to absorb the entity’s losses if they occur; or (iii) the right toreceive the entity’s future returns if they occur.  Interpretation No. 46 is applicable for all variable interestscreated after January 31, 2003. For all variable interest entities created before February 1, 2003,the provisions of this interpretation are effective in the first fiscal year orinterim period beginning after December 15, 2003 (our first quarter of fiscal2004).  The adoption of thisinterpretation did not have a material impact on our financial statements.

 

In December2003, the FASB issued revisions to Statement of Financial Accounting Standard(“SFAS”) No. 132, “Employers’ Disclosures about Pensions and OtherPostretirement Benefits,” effective for fiscal years ending after December 15,2003 for U.S. plans and effective for fiscal years ending after June 15, 2004for certain disclosures related to foreign plans.  These revisions increase existing disclosures in addition toadding new disclosures.  We adopted theinterim disclosures in the third quarter of fiscal 2004.  Fiscal year end disclosures will be adoptedand incorporated in our fiscal 2004 consolidated financial statements.

 

*Summary of Significant Accounting Policies. *A detailed description of oursignificant accounting policies can be found in our most recent Annual Reportfiled on Form 10-K for the fiscal year ended October 31, 2003.  Subsequent to the fiscal year end October31, 2003, we acquired the KRONE Group of Companies ("KRONE"), whichmaintains a defined benefit pension for a portion of its German workforce.Accordingly, we have adopted a pension accounting policy relating to thisdefined benefit pension plan.  Aparticipating employee’s post-retirement pension benefit is actuariallydetermined based primarily on the employee’s years of service and earnings.

 

**Note 2 – Stock-Based Compensation**

 

We recognizeand measure our stock compensation by the intrinsic value method in accordancewith APB Opinion 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations.  We award stockcompensation to certain key employees in the form of stock options, restrictedstock and restricted stock units. Compensation cost for employee stock options is measured as the excess,if any, of the quoted market price of our common stock at the date of the grantover the amount that the employee is required to pay for the stock.  No compensation expense was recognized forstock options granted in fiscal 2004 and 2003 as all stock options were grantedwith an exercise price equal to the fair market value of our common stock onthe date of grant.  The recipients ofrestricted stock and restricted stock units do not pay for the awards.  Accordingly, compensation cost for theseawards is equal to the fair market value of the shares or units on the date ofgrant and is amortized over the projected remaining vesting period.

 

Under thedisclosure provisions of SFAS No. 148, “Accounting for Stock-BasedCompensation,” on a quarterly basis we must disclose how stock compensationexpense would be computed under SFAS No. 123, “Accounting for Stock-BasedCompensation,” using the fair value method. We estimate the fair value of stock options using the Black-Scholesoption-pricing model.  The followingtable summarizes what our operating results would have been if the fair valuemethod of accounting for stock options had been utilized (in millions, exceptfor per share amounts):

 
|                                                                             |   | **Three  Months Ended  July 31,** |   | **Nine  Months Ended  July 31,** |   |
|----------------------------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                                                             |   | **2004**                          |   | **2003**                         |   | **2004** |   | **2003** |   |
| Net Loss as reported                                                             |   | $                                 | (14.3  | )                                | $      | (15.1 | ) | $ | (43.3 | ) | $ | (86.0 | ) |
| Plus:   Stock-based employee compensation expense included in reported loss |   | 1.4                               |   | 3.4                              |   | 2.1 |   | 5.5 |   |
| Less:   Stock compensation expense – fair value based method           |   | (6.4                              | )      | (13.7                            | )      | (18.8 | ) | (46.3 | ) |
| Pro Forma Net Loss                                                               |   | $                                 | (19.3  | )                                | $      | (25.4 | ) | $ | (60.0 | ) | $ | (126.8 | ) |
|                                                                             |   |                              |   |                             |   |   |   |   |   |
| Loss Per Share – Basic and Diluted                                          |   |                              |   |                             |   |   |   |   |   |
| As reported                                                                      |   | $                                 | (0.02  | )                                | $      | (0.02 | ) | $ | (0.05 | ) | $ | (0.11 | ) |
| Pro forma                                                                        |   | $                                 | (0.02  | )                                | $      | (0.03 | ) | $ | (0.07 | ) | $ | (0.16 | ) |

 

5

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During thethird quarter of fiscal 2003, we offered to eligible employees the right toexchange certain of their employee stock options for a lesser number of newoptions to be granted six months and one day following the surrender of theirexisting options.  The new options,which were granted on December 29, 2003, have an exercise price of $2.83 pershare, which is equal to the average of the high and low trading price of ourcommon stock on the grant date.  Theseoptions will vest over a two-year period from the grant date.  For purposes of the above tabulardisclosure, the unrecognized compensation cost of the cancelled options and theincremental fair value of the replacement options are being amortized over a30-month period, consisting of the 24-month vesting period for the replacementoptions and the six month and one day period between the cancellation of thesurrendered options and the grant of the replacement options.

 

**Note 3 – Acquisition**

 

On May 18,2004, we completed the acquisition of KRONE, a global supplier of copper-basedand fiber-based connectivity solutions and cabling products used in publicaccess and enterprise networks, from GenTek, Inc. This acquisition increasesour network infrastructure business and expands our presence in theinternational marketplace.  The resultsof KRONE subsequent to May 18, 2004, are included in our results of operationsfor the three and nine months ended July 31, 2004.

 

In thistransaction, we acquired the assets and operations of KRONE for $293.1 millionin cash (net of cash acquired) and assumed certain liabilities of KRONE. Weacquired $67.9 million of intangible assets (see Note 9 below for furtherdiscussion of intangible assets).  Noamounts were allocated to in-process research and development, because KRONEdid not have any new products in development at the time of the acquisition.  Goodwill of $175.7 million was recorded inthe transaction and assigned to our Broadband Infrastructure and Accesssegment.  Substantially all of thisgoodwill is not deductible for tax purposes. We are in the process of finalizing restructuring actions related tothis acquisition, which may result in adjustment to the purchase priceallocation or incremental restructuring charges or both.

 

The followingtable summarizes the preliminary allocation of the purchase price to theestimated fair values of the assets acquired and liabilities assumed at thedate of the acquisition (in millions):

 
|                      |   | **May 18,  2004** |   |
|---------------------------|--------|-------------------|--------|
| Current assets            |   | $                 | 114.5  |   |
| Intangible assets         |   | 67.9              |   |
| Goodwill                  |   | 175.7             |   |
| Other long-term assets    |   | 88.9              |   |
| Total assets acquired     |   | 447.0             |   |
| Current liabilities       |   | 72.1              |   |
| Long-term liabilities     |   | 64.3              |   |
| Total liabilities assumed |   | 136.4             |   |
| Net assets acquired       |   | 310.6             |   |
| Less cash acquired        |   | 17.5              |   |
| Net cash paid             |   | $                 | 293.1  |   |

 

Unaudited proforma consolidated results of continuing operations, as though the acquisitionof KRONE had taken place at the beginning of the periods presented, are asfollows (in millions, except per share data):

** **
|                                             |   | **Three  Months Ended  July 31, (2)** |   | **Nine  Months Ended  July 31, (2)** |      |
|--------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|-----------|
|                                             |   | **2004**                              |   | **2003**                             |      | **2004** |   | **2003** |   |
| Revenue                                          |   | $                                     | 252.5  |                                 | $         | 233.0 |   | $ | 726.3 |   | $ | 673.4 |   |
| Income (Loss) from continuing operations         |   | 0.8                                   | (1)    | (2.0                                 | )(1)      | 9.7 | (1) | (70.9 | )(1) |
| Net income loss per share—basic and diluted |   | 0.00                                  | (1)    | 0.00                                 | (1)  | 0.01 | (1) | (0.09 | )(1) |
|                                                  |        |                                       |        |                                      |           |  |  |  |  |  |  |  |  |

 

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(1)        Includes restructuring and impairment chargesof $0.7 million and $0.0 million for the three months ended July 31, 2004,respectively, $6.9 million and $0.2 million for the three months ended July 31,2003, respectively, $12.8 million and $1.5 million for the nine months endedJuly 31, 2004, respectively, and $25.5 million and $14.8 million for the ninemonths ended July 31, 2003, respectively, for the ADC stand alonebusiness.  Includes restructuringcharges of $0.1 million for the three months ended July 31, 2004, and $2.4million and $1.4 million for the nine months ended July 31, 2004 and 2003, respectively,for the KRONE stand alone business. See note 14 for discussion of the nature ofthese charges.

(2)        Excludes the results of our CudaTM,FastFlow®, BroadAccess40  andSingl.eView® product lines which are treated as discontinued operations.

 

6

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The unauditedpro forma results of operations are for comparative purposes only and do notnecessarily reflect the results that would have occurred had the acquisitionbeen completed at the beginning of the periods presented or the results whichmay occur in the future.

 

**Note 4 – Assets Acquired**

 

On July 21, 2004, we purchased customer relationships, power servicescontracts and certain other assets from Stationary Power Systems for $4.6million.  The acquisition of theseassets, which will be included in our Integrated Solutions segment, will expandour systems integration business with the addition of DC power engineering,furnishing and installation capabilities. The assets purchased are principally intangible assets, which will beamortized over two years.  See Note 9below for a discussion of intangible assets.

 

**Note 5 - 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,” thisbusiness was classified as a discontinued operation in the first quarter offiscal 2004, and its financial results are reported separately as discontinuedoperations for all periods presented. This transaction closed on February 24, 2004.  We estimated the loss on the sale of the business based on thevalue of the business’ assets and liabilities as of January 31, 2004.  Subsequent to January 31, 2004, adjustmentsof $3.0 million were made to the previous estimate and increased the total losson the transaction to $6.7 million.

 

The purchasersof the BroadAccess40 business acquired all of the stock of our subsidiary thatoperated this business and assumed substantially all liabilities associatedwith the business, with the exception of a $7.5 million note payable that waspaid in full by us prior to the closing of the transaction.  Thepurchasers issued a promissory note to us for $3.8 million that ispayable within two years of the closing.

 

During the third quarter of fiscal 2004, we entered into an agreementto sell the business related to our CudaTM cable modem termination systemproduct line and related FastFlowÒBroadband Provisioning Manager software to BigBand Networks, Inc.  This business had been included in ourBroadband Infrastructure and Access segment. In consideration for this sale, we were issued a non-voting minorityinterest in BigBand.  We also providedBigBand with a non-revolving credit facility of up to $12.0 million with a termof three years.  This transaction closedon June 29, 2004.  As of July 31, 2004,$7.0 million was drawn on the credit facility. We classified this business as a discontinued operation beginning in thethird quarter of fiscal 2004, and recorded a loss on divestiture of $2.6million.

 

During thethird quarter of fiscal 2004, we entered into an agreement to sell the businessrelated to our Singl.eView® product line to Intec Telecom Systems PLC for acash purchase price of $74.5 million, subject to purchase priceadjustments.  This business had beenincluded in our Integrated Solutions segment. We also agreed to provide Intec with a $6.0 million non-revolving creditfacility with a term of 18 months.  Thetransaction closed on August 27, 2004, and we received net cash proceeds of$71.2 million after funding a $4 million draw on the credit facility.  We classified this business as adiscontinued operation in the third quarter of fiscal 2004.

 

Certainfinancial information regarding our BroadAccess40, CudaTM/ FastFlowÒand Singl.eviewÒ product lines included in discontinuedoperations is set forth below (in millions):

 
|                                          |   | **Three  Months Ended  July 31,** |   | **Nine  Months Ended  July 31,** |   |
|-----------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                          |   | **2004**                          |   | **2003**                         |   | **2004** |   | **2003** |   |
|                                          |   |                              |   |                             |   |   |   |   |   |
| Revenue                                       |   | $                                 | 15.8   |                             | $      | 36.3 |   | $ | 67.9 |   | $ | 123.0 |   |
|                                          |   |                              |   |                             |   |   |   |   |   |
| Loss from discontinued  operations            |   | $                                 | (10.7  | )                                | $      | (12.5 | ) | $ | (49.0 | ) | $ | (25.1 | ) |
| Loss on sale of subsidiaries                  |   | (6.8                              | )      | —                           |   | (9.3 | ) | — |   |
| Loss from discontinued  operation, net of tax |   | $                                 | (17.5  | )                                | $      | (12.5 | ) | $ | (58.3 | ) | $ | (25.1 | ) |

 

**Note 6 – Net Income(Loss) from Continuing Operations Per Share**

 

The followingtable presents a reconciliation of the numerators and denominators of basic anddiluted income (loss) per share from continuing operations for the three andnine months ended July 31, 2004 and 2003 (in millions, except for per shareamounts):

 

7

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|                                                                  |   | **Three  Months Ended  July 31,** |   | **Nine  Months Ended  July 31,** |   |
|-----------------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                                                  |   | **2004**                          |   | **2003**                         |   | **2004** |   | **2003** |   |
| Numerator:                                                            |   |                              |   |                             |   |   |   |   |   |
| Net income (loss) from continuing  operations                         |   | $                                 | 3.2    |                             | $      | (2.6 | ) | $ | 15.0 |   | $ | (60.9 | ) |
|                                                                  |   |                              |   |                             |   |   |   |   |   |
| Denominator:                                                          |   |                              |   |                             |   |   |   |   |   |
| Weighted average common shares outstanding                            |   | 808.9                             |   | 804.1                            |   | 807.9 |   | 802.7 |   |
| Employee options and other                                            |   | 2.8                               |   | —                           |   | 5.4 |   | — |   |
| Weighted average common shares outstanding                            |   | 811.7                             |   | 804.1                            |   | 813.3 |   | 802.7 |   |
|                                                                  |   |                              |   |                             |   |   |   |   |   |
| Basic and diluted income (loss) per share  from continuing operations |   | $                                 | 0.00   |                             | $      | (0.00 | ) | $ | 0.02 |   | $ | (0.08 | ) |

 

Excluded from the dilutive securities described above are employeestock options to acquire 51.3 million and 79.1 million shares for the threemonths ended July 31, 2004 and 2003, respectively, and 46.3 million and 89.3million for the nine months ended July 31, 2004 and 2003, respectively.  These exclusions were made either becausethe exercise prices of these options were greater than the average market priceof our common stock for the period, or because of our net losses, both of whichwould have had an anti-dilutive effect.

 

Warrants to acquire 99.7 million shares issued in connection with ourconvertible notes were excluded from the dilutive securities described abovefor the three and nine months ended July 31, 2004 and 2003, respectively,because the exercise price of these warrants was greater than the averagemarket price of the common stock.

 

All shares reserved for issuance upon conversion of our convertiblenotes were excluded for the three and nine months ended July 31, 2004 and 2003,respectively, because of their anti-dilutive effect.  Upon achieving positive net income from continuing operations ina 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 isanti-dilutive, the net-of-tax interest on the convertible notes will not beadded back and the 99.7 million shares of common stock reserved for issuanceupon conversion of our convertible notes will not be included.

 

**Note 7 - Inventories**

 

Inventories consist of the following (in millions):

 
|                                           |   | **July 31,  2004** |   | **October 31,  2003** |   |
|------------------------------------------------|--------|--------------------|--------|----------------------------|--------|
|                                           |   |               |   |                       |   |
| Purchased materials and manufactured  products |   | $                  | 143.1  |                       | $      | 88.4 |   |
| Work-in-process                                |   | 14.6               |   | 1.4                        |   |
| Less:   Inventory reserve                 |   | (45.5              | )      | (32.2                      | )      |
| Total inventories, net                         |   | $                  | 112.2  |                       | $      | 57.6 |   |

 

**Note 8 – Property& Equipment**

 

Property &equipment consists of the following (in millions):

 
|                           |   | **July 31,  2004** |   | **October 31,  2003** |   |
|--------------------------------|--------|--------------------|--------|----------------------------|--------|
|                           |   |               |   |                       |   |
| Land and buildings             |   | $                  | 135.6  |                       | $      | 120.2 |   |
| Machinery and equipment        |   | 376.2              |   | 324.0                      |   |
| Furniture and fixtures         |   | 33.3               |   | 32.0                       |   |
| Less: accumulated depreciation |   | (315.8             | )      | (302.4                     | )      |
| Total                          |   | 229.3              |   | 173.8                      |   |
| Construction in progress (CIP) |   | 11.2               |   | 2.8                        |   |
| Total property & equipment |   | $                  | 240.5  |                       | $      | 176.6 |   |

 

8

----

 

**Note 9 – Goodwill andIntangible Assets**

 

We recorded $175.7 million in goodwill in connection with theacquisition of KRONE.  It is ourpractice to assess goodwill for impairment under the annual requirement of SFAS142, “Goodwill and Other Intangible Assets,” or when impairment indicatorsarise.  No goodwill impairmentindicators existed as of July 31, 2004.

 

We recorded intangible assets of $67.9 million in connection with theacquisition of KRONE, consisting principally of intellectual property rights,and $4.6 million related to the contract rights purchased from Stationary PowerSystems.

 

The following table represents intangible assets by category andaccumulated amortization as of July 31, 2004 (in millions):

 
|                  |   | **Gross  Carrying  Amounts** |   | **Accumulated  Amortization** |   | **Net** |   | **Estimated  Life Range  (in years)** |   |
|-----------------------|--------|------------------------------|--------|-------------------------------|--------|---------|--------|---------------------------------------|--------|
| Technology            |   | $                            | 23.4   |                          | 0.8    |    | $      | 22.6                                  |   |   | 5-7 |   |
| Trade name/trademarks |   | 23.4                         |   | 0.3                           |   | 23.1    |   |                                  | 5-20   |   |
| Distributor network   |   | 18.9                         |   | 0.4                           |   | 18.5    |   |                                  | 10     |   |
| Customer list         |   | 4.6                          |   | —                        |   | 4.6     |   |                                  | 2      |   |
| Other                 |   | 6.6                          |   | 1.5                           |   | 5.1     |   |                                  | 1-13   |   |
|                  |   | $                            | 76.9   |                          | $      | 3.0     |   | $                                     | 73.9   |   |   |   |
|                       |        |                              |        |                               |        |         |        |                                       |        |  |  |  |  |

 

Amortization expense was $1.8 million and $2.1 million for the threeand nine months ended July 31, 2004, respectively.  The estimated amortization expense for identified intangibleassets is as follows for the periods indicated (in millions):

 
| 2005       |   | $    | 10.4   |   |
|------------|--------|------|--------|--------|
| 2006       |   | 9.9  |   |
| 2007       |   | 8.0  |   |
| 2008       |   | 7.6  |   |
| Thereafter |   | 35.4 |   |

 

**Note 10 - IncomeTaxes**

 

A deferred taxasset generally represents future tax benefits to be received when certainexpenses previously recognized in U.S. GAAP-based income statements becomedeductible expenses under applicable income tax laws.  The realization of a deferred tax asset therefore is dependent onfuture taxable income against which these deductions can be applied.  SFAS No. 109, “Accounting for Income Taxes,”requires that a valuation allowance be established when it is more likely thannot that all or a portion of deferred tax assets will not be realized.  In fiscal 2003 and for the three and ninemonths ended July 31, 2004, we recorded a nearly full valuation allowanceagainst a substantial portion of the increase in our deferred tax assets. Weexpect to provide a full valuation allowance on any future tax benefits untilwe can sustain a level of profitability that demonstrates our ability toutilize these assets. We will not record tax benefits or significant provisionsfor pre-tax income (loss) until either our deferred tax assets are fullyutilized to reduce future income tax liabilities or the value of our deferredtax assets are restored on the balance sheet. As of July 31, 2004, we had $863.3 million of deferred tax assets thathave a valuation allowance of $861.8 million against them and, therefore, suchdeferred tax assets are reflected at $1.5 million in Other Assets on theCondensed Consolidated Balance Sheet. Our deferred tax assets expire through October 31, 2024.

 

**Note 11 -Comprehensive Loss**

 

Comprehensiveloss has no impact on our net loss but is reflected in our balance sheetthrough adjustments to shareowners’ investment.  The components of comprehensive loss are as follows (inmillions):

 
|                                                                                         |   | **Three  Months Ended  July 31,** |   | **Nine  Months Ended  July 31,** |   |
|----------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                                                                         |   | **2004**                          |   | **2003**                         |   | **2004** |   | **2003** |   |
|                                                                                         |   |                              |   |                             |   |   |   |   |   |
| Net loss                                                                                     |   | $                                 | (14.3  | )                                | $      | (15.1 | ) | $ | (43.3 | ) | $ | (86.0 | ) |
| Change in cumulative translation  adjustments                                                |   | 0.3                               |   | (1.0                             | )      | 10.2 |   | (5.8 | ) |
| Reclassification adjustment for realized  gains on available for sale securities, net-of-tax |   | —                            |   |                             |   | (4.1 | ) | — |   |
| Unrealized (loss) gain from available for  sale securities, net-of-tax                       |   | —                            |   | 0.4                              |   | (0.5 | ) | 3.0 |   |
| Total comprehensive loss                                                                     |   | $                                 | (14.0  | )                                | $      | (15.7 | ) | $ | (37.7 | ) | $ | (88.8 | ) |

 

9

----

 

**Note 12 - Pension Benefits**

 

With theacquisition of KRONE, we assumed certain defined benefit pension obligations ofKRONE related to its German workforce. Prior to the KRONE acquisition, we did not have any defined benefitpension plans.  The KRONE pension planis an unfunded general obligation of our German subsidiary (which is a commonarrangement for German pension plans) and, based on a third party actuarialreport, we recorded a liability of $60.6 million for this obligation as of July31, 2004.  The plan was closed to employeeshired after 1994 and thus covers only current retirees and those hired prior to1995.  Pension payments will be made toeligible employees upon reaching eligible retirement age, and the cash paymentsare expected to roughly equal the net periodic benefit cost.

 

Components ofnet periodic benefit cost for the three and nine months ended July 31, 2004 and2003, are as follows (in millions):

 
|                    |   | **Three  Months Ended  July 31,** |   | **Nine  Months Ended  July 31,** |   |
|-------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                    |   | **2004**                          |   | **2003**                         |   | **2004** |   | **2003** |   |
|                    |   |                              |   |                             |   |   |   |   |   |
| Service cost            |   | $                                 | 0.1    |                             | $      | — |   | $ | 0.1 |   | $ | — |   |
| Interest cost           |   | 0.6                               |   | —                           |   | 0.6 |   | — |   |
| Net period benefit cost |   | $                                 | 0.7    |                             | $      | — |   | $ | 0.7 |   | $ | — |   |

 

**Note 13 - Segment andGeographic Information**

 

***Segment Information***

 

The“management approach” required by SFAS No. 131, “Disclosures aboutSegments of an Enterprise and Related Information,” requires us to discloseselected financial data by product groups. We have four principal product groups, which we aggregate into tworeportable segments – Broadband Infrastructure and Access and IntegratedSolutions.  Each of the product groupsincluded in the Broadband Infrastructure and Access and Integrated Solutionsreporting segments has similar economic characteristics, manufacturingprocesses, customers, distribution, and regulatory environments.  Net sales by product group are as follows(in millions):

 
|                                    |   | **Three  Months Ended  July 31,** |       | **Nine  Months Ended  July 31,** |       |
|-----------------------------------------|--------|-----------------------------------|------------|----------------------------------|------------|
|                                    |   | **2004**                          |       | **2003**                         |       | **2004** |   | **2003** |   |
|                                    |   |                              | ** ** |                             | ** ** |   | ** ** |   | ** ** |
| Infrastructure Products                 |   | $                                 | 149.7      |                             | $          | 69.5 |   | $ | 297.8 |   | $ | 206.4 |   |
| Access Products                         |   | 33.2                              |       | 37.7                             |       | 107.6 |   | 122.0 |   |
| Eliminations and Other                  |   | (5.9                              | )          | (6.4                             | )          | (13.6 | ) | (15.0 | ) |
| **Broadband Infrastructure and Access** |   | 177.0                             |       | 100.8                            |       | 391.8 |   | 313.4 |   |
| Systems Integration Services            |   | 50.7                              |       | 42.1                             |       | 126.1 |   | 119.8 |   |
| Software Solutions                      |   | 7.5                               |       | 9.3                              |       | 20.8 |   | 24.1 |   |
| **Integrated Solutions**                |   | 58.2                              |       | 51.4                             |       | 146.9 |   | 143.9 |   |
|                                         |        |                                   |            |                                  |            |  |  |  |  |  |  |  |  |

 

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

 
|                                                          |   | **Broadband  Infrastructure  and Access** |   | **Integrated  Solutions** |   | **Unallocated  Items** |   | **Consolidated** |   |
|---------------------------------------------------------------|--------|-------------------------------------------|--------|---------------------------|--------|------------------------|--------|------------------|--------|
| **Three Months Ended July 31, 2004**                          |   |                                      |   |                      |   |                   |   |             |   |
| External sales:                                               |   |                                      |   |                      |   |                   |   |             |   |
| Product                                                       |   | $                                         | 177.0  |                      | $      | 19.0                   |   | $                | — |   | $ | 196.0 |   |
| Service                                                       |   | —                                    |   | 39.2                      |   | —                 |   | 39.2             |   |
| Total external sales                                          |   | 177.0                                     |   | 58.2                      |   | —                 |   | 235.2            |   |
|                                                          |   |                                      |   |                      |   |                   |   |             |   |
| Impairment, restructuring and other  disposal charges (1)     |   | (0.2                                      | )      | (0.1                      | )      | (0.4                   | )      | (0.7             | )      |
| Operating income (loss)                                       |   | 20.0                                      |   | (2.5                      | )      | (14.3                  | )      | 3.2              |   |
| Other income (expense), net                                   |   | 1.1                                       |   | (0.1                      | )      | (0.6                   | )      | 0.3              |   |
| Income (loss) from continuing operations  before income taxes |   | 21.1                                      |   | (2.6                      | )      | (15.0                  | )      | 3.5              |   |
| Assets                                                        |   | 306.7                                     |   | 147.0                     |   | 900.9                  |   | 1,354.6          |   |
|                                                          |   |                                      |   |                      |   |                   |   |             |   |
| **Three Months Ended July 31, 2003**                          |   |                                      |   |                      |   |                   |   |             |   |
| External sales:                                               |   |                                      |   |                      |   |                   |   |             |   |
| Product                                                       |   | $                                         | 100.8  |                      | $      | 19.7                   |   | $                | — |   | $ | 120.5 |   |
| Service                                                       |   | —                                    |   | 31.7                      |   | —                 |   | 31.7             |   |
| Total external sales                                          |   | 100.8                                     |   | 51.4                      |   | —                 |   | 152.2            |   |
|                                                          |   |                                      |   |                      |   |                   |   |             |   |
| Impairment, restructuring and other  disposal charges (1)     |   | (3.2                                      | )      | (2.4                      | )      | (1.5                   | )      | (7.1             | )      |
| Operating income (loss)                                       |   | 7.1                                       |   | 2.5                       |   | (10.5                  | )      | (0.9             | )      |
| Other income (expense), net                                   |   | 2.1                                       |   | (1.0                      | )      | (2.8                   | )      | (1.7             | )      |
| Income (loss) from continuing operations  before income taxes |   | 9.2                                       |   | 1.5                       |   | (13.3                  | )      | (2.6             | )      |
| Assets                                                        |   | 230.7                                     |   | 272.9                     |   | 793.3                  |   | 1,296.9          |   |

 

10

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|                                                          |   | **Broadband  Infrastructure  and Access** |   | **Integrated  Solutions** |   | **Unallocated  Items** |   | **Consolidated** |   |
|---------------------------------------------------------------|--------|-------------------------------------------|--------|---------------------------|--------|------------------------|--------|------------------|--------|
| **Nine Months Ended July 31, 2004**                           |   |                                      |   |                      |   |                   |   |             |   |
| External sales:                                               |   |                                      |   |                      |   |                   |   |             |   |
| Product                                                       |   | $                                         | 391.8  |                      | $      | 48.8                   |   | $                | — |   | $ | 440.6 |   |
| Service                                                       |   | —                                    |   | 98.1                      |   | —                 |   | 98.1             |   |
| Total external sales                                          |   | 391.8                                     |   | 146.9                     |   | —                 |   | 538.7            |   |
|                                                          |   |                                      |   |                      |   |                   |   |             |   |
| Impairment, restructuring and other  disposal charges (1)     |   | 0.7                                       |   | (0.7                      | )      | (14.3                  | )      | (14.3            | )      |
| Operating income (loss)                                       |   | 56.3                                      |   | (7.1                      | )      | (42.6                  | )      | 6.6              |   |
| Other income (expense), net                                   |   | 1.7                                       |   | 0.6                       |   | 6.8                    |   | 9.1              |   |
| Income (loss) from continuing operations  before income taxes |   | 58.0                                      |   | (6.5                      | )      | (35.8                  | )      | 15.7             |   |
| Assets                                                        |   | 306.7                                     |   | 147.0                     |   | 900.9                  |   | 1,354.6          |   |
|                                                          |   |                                      |   |                      |   |                   |   |             |   |
| **Nine Months Ended July 31, 2003**                           |   |                                      |   |                      |   |                   |   |             |   |
| External sales:                                               |   |                                      |   |                      |   |                   |   |             |   |
| Product                                                       |   | $                                         | 313.4  |                      | $      | 52.0                   |   | $                | — |   | $ | 365.5 |   |
| Service                                                       |   | —                                    |   | 91.9                      |   | —                 |   | 91.8             |   |
| Total external sales                                          |   | 313.4                                     |   | 143.9                     |   | —                 |   | 457.3            |   |
|                                                          |   |                                      |   |                      |   |                   |   |             |   |
| Impairment, restructuring and other  disposal charges (1)     |   | (5.6                                      | )      | (9.7                      | )      | (25.0                  | )      | (40.3            | )      |
| Operating income (loss)                                       |   | 9.8                                       |   | (6.2                      | )      | (63.0                  | )      | (59.4            | )      |
| Other income (expense), net                                   |   | 6.1                                       |   | (0.6                      | )      | (7.0                   | )      | (1.5             | )      |
| Income (loss) from continuing operations  before income taxes |   | 15.9                                      |   | (6.8                      | )      | (70.0                  | )      | (60.9            | )      |
| Assets                                                        |   | 230.7                                     |   | 272.9                     |   | 793.3                  |   | 1,296.9          |   |

 

----

(1)          See Note 14 below for a discussion of thesecharges.

 

***GeographicInformation***

 

The following information represents revenues by significantgeographical territories (in millions):

 
|                                                       |   | **Three  Months Ended  July 31,** |   | **Nine  Months Ended  July 31,** |   |
|------------------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                                       |   | **2004**                          |   | **2003**                         |   | **2004** |   | **2003** |   |
| Inside the United States                                   |   | $                                 | 124.0  |                             | $      | 104.8 |   | $ | 329.4 |   | $ | 328.7 |   |
| Outside the United States:                                 |   |                              |   |                             |   |   |   |   |   |
| Asia (China, Hong Kong and Korea)                          |   | 9.8                               |   | 5.5                              |   | 22.1 |   | 16.7 |   |
| Indo Pacific (Australia, India, Japan and  Southeast Asia) |   | 10.7                              |   | —                           |   | 10.7 |   | 0.2 |   |
| EMEA (Europe (excluding Germany), Middle  East and Africa) |   | 45.5                              |   | 28.0                             |   | 100.7 |   | 76.1 |   |
| Germany                                                    |   | 27.1                              |   | —                           |   | 27.1 |   | — |   |
| Americas (Canada, Central and South  America)              |   | 18.1                              |   | 13.9                             |   | 48.7 |   | 35.6 |   |
|                                                       |   | 111.2                             |   | 47.4                             |   | 209.3 |   | 128.6 |   |
|                                                       |   | $                                 | 235.2  |                             | $      | 152.2 |   | $ | 538.7 |   | $ | 457.3 |   |

 

11

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**Note 14 - Impairment,Restructuring and Other Disposal Charges**

 

During thethree and nine months ended July 31, 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 of excessfacilities, and other disposal charges associated with inventory write-offs andcertain administrative charges related to product line divestitures. Theimpairment, restructuring and other disposal charges resulting from our actionsby category of expenditures, adjusted to exclude those activities specificallyrelated to discontinued operations, are as follows for the three and ninemonths ended July 31, 2004 and 2003 (in millions):

 
| **Three Months Ended July 31, 2004**          |   | **Impairment  Charges** |   | **Restructuring  Charges** |   | **Cost of  Product Sold** |   | **Total** |   |
|-----------------------------------------------|--------|-------------------------|--------|----------------------------|--------|---------------------------|--------|-----------|--------|
| Employee severance costs                      |   | $                       | — |                       | $      | 0.6                       |   | $         | — |   | $ | 0.6 |   |
| Facility consolidation and lease  termination |   | —                  |   | 0.1                        |   | —                    |   | 0.1       |   |
| Fixed asset write-downs                       |   | —                  |   | —                     |   | —                    |   | —    |   |
| Total                                         |   | $                       | — |                       | $      | 0.7                       |   | $         | — |   | $ | 0.7 |   |

 
| **Three Months Ended July 31, 2003**          |   | **Impairment  Charges** |   | **Restructuring  Charges** |   | **Cost of  Product Sold** |   | **Total** |   |
|-----------------------------------------------|--------|-------------------------|--------|----------------------------|--------|---------------------------|--------|-----------|--------|
| Employee severance costs                      |   | $                       | — |                       | $      | 3.4                       |   | $         | — |   | $ | 3.4 |   |
| Facility consolidation and lease  termination |   | —                  |   | 2.2                        |   | —                    |   | 2.2       |   |
| Fixed asset write-downs                       |   | 0.2                     |   | —                     |   | —                    |   | 0.2       |   |
| Inventory write-offs                          |   | —                  |   | —                     |   | 1.3                       |   | 1.3       |   |
| Total                                         |   | $                       | 0.2    |                       | $      | 5.6                       |   | $         | 1.3    |   | $ | 7.1 |   |

 
| **Nine Months Ended July 31, 2004**           |   | **Impairment  Charges** |   | **Restructuring  Charges** |   | **Cost of  Product Sold** |   | **Total** |   |
|-----------------------------------------------|--------|-------------------------|--------|----------------------------|--------|---------------------------|--------|-----------|--------|
| Employee severance costs                      |   | $                       | — |                       | $      | 2.7                       |   | $         | — |   | $ | 2.7 |   |
| Facility consolidation and lease  termination |   | —                  |   | 10.1                       |   | —                    |   | 10.1      |   |
| Fixed asset write-downs                       |   | 1.5                     |   | —                     |   | —                    |   | 1.5       |   |
| Total                                         |   | $                       | 1.5    |                       | $      | 12.8                      |   | $         | — |   | $ | 14.3 |   |

 
| **Nine Months Ended July 31, 2003**           |   | **Impairment  Charges** |   | **Restructuring  Charges** |   | **Cost of  Product Sold** |   | **Total** |   |
|-----------------------------------------------|--------|-------------------------|--------|----------------------------|--------|---------------------------|--------|-----------|--------|
| Employee severance costs                      |   | $                       | — |                       | $      | 20.6                      |   | $         | — |   | $ | 20.6 |   |
| Facility consolidation and lease  termination |   | —                  |   | 2.2                        |   | —                    |   | 2.2       |   |
| Fixed asset write-downs                       |   | 14.8                    |   | —                     |   | —                    |   | 14.8      |   |
| Inventory write-offs                          |   | —                  |   | —                     |   | 2.7                       |   | 2.7       |   |
| Total                                         |   | $                       | 14.8   |                       | $      | 22.8                      |   | $         | 2.7    |   | $ | 40.3 |   |

 

***Impairment Charges:***  We incurred impairment charges of $1.5million for the nine months ended July 31, 2004, related to a manufacturingfacility included in assets held for sale. For the three and nine months ended July 31, 2003, we incurred $0.2million and $14.8 million of charges related to property and equipment as aresult of our intention to sell, scale-back or exit non-strategic businesses.

 

***RestructuringCharges:*** Restructuring charges relate principally to employee severance costs andfacility consolidation costs resulting from the closure of facilities andworkforce reductions attributable to our efforts to reduce costs.  The employee severance costs incurred duringthe three and nine months ended July 31, 2004, relate to approximately 70 and190 employees, respectively, who were impacted by reductions in force.  These employees were engaged principally inour software business and corporate functions. During the three and nine months ended July 31, 2003, approximately 220and 1,240 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 and nine months ended July 31, 2004, we incurred chargesof $0.1 million and $10.1 million primarily due to continued softening of realestate markets, which resulted in lower sublease income.

 

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***Other DisposalCharges:***  Inventorywrite-offs recorded in fiscal 2003 represent losses incurred to write down thecarrying value of inventory 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:***  The following table provides detail on theactivity and our remaining restructuring accrual balance by category as of July31, 2004 (in millions):

 
| **Type of Charge**       |   | **Accrual  October 31, 2003** |   | **Discontinued  Operations  Net Additions** |   | **Net  Additions** |   | **Cash  Charges** |   | **Accrual  July 31, 2004** |   |
|--------------------------|--------|------------------------------------|--------|---------------------------------------------|--------|--------------------|--------|-------------------|--------|----------------------------|--------|
|                     |   |                               |   |                                        |   |               |   |              |   |                       |   |
| Employee severance costs |   | $                                  | 5.3    |                                        | $      | 2.7                |   | $                 | 6.8    |                       | $      | 6.1 |   | $ | 8.7 |   |
| Facilities consolidation |   | 24.3                               |   | 5.2                                         |   | 9.9                |   | 14.1              |   | 25.3                       |   |
| Total                    |   | $                                  | 29.6   |                                        | $      | 7.9                |   | $                 | 16.7   |                       | $      | 20.2 |   | $ | 34.0 |   |

 

Net additionsabove include $3.9 million in reserves acquired with the KRONE acquisition.

 

We expect thatsubstantially all of the remaining $8.7 million accrual relating to employeeseverance costs as of July 31, 2004, will be paid from unrestricted cash by theend of the second quarter of fiscal 2005. Of the $25.3 million to be paid for the consolidation of facilities, weexpect that approximately $5.0 million will be paid from unrestricted cashthrough April 30, 2005, and that the balance will be paid from unrestrictedcash over the respective lease terms of the facilities through 2015.  Based on our intention to continue toconsolidate and close duplicative or excess manufacturing operations in orderto reduce our cost structure, we may incur additional restructuring charges(both cash and non-cash) in future periods. These restructuring charges may have a material effect on our operatingresults.

 

In addition tothe restructuring accrual described above, we have $6.9 million of assets heldfor sale that were not allocated to either of our segments.  We classified these assets as “Held forSale” pursuant to our decision to exit non-strategic product lines and toreduce the size of our operations.  Weexpect to sell or dispose of these assets before April 30, 2005.  Duringthe nine months ended July 31, 2004, we reclassified $5.3 million relating to afacility in Glenrothes, Scotland to property and equipment held for use,because we may lease this facility rather than selling it.  In the third quarter of fiscal 2004, we solda property for $11.0 million, with no gain or loss on the sale.  We also sold three properties, previouslyclassified as held for sale, during the nine months ended July 31, 2004, forproceeds of $16.2 million and a gain of $0.2 million.

 

**Note 15 – Commitments and Contingencies**

 

Discussion oflegal proceedings is incorporated by reference from Part II, Item 1, LegalProceedings, of this report, and should be considered an integral part of theinterim Condensed Consolidated Financial Statements and Notes.

 

***ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATIONS***

 

***Overview***

 

During thethird quarter of fiscal 2004 we took several significant steps to further ourstrategic business initiative to be a global leader in communications networkinfrastructure solutions and services. First, we completed the acquisition of the KRONE Group, a globalsupplier of copper-based and fiber-based connectivity solutions and cablingproducts used in public access and enterprise networks.  Secondly, we completed the divestiture ofour CudaTM cable modem termination system and FastFlow® BroadbandProvisioning Manager businesses and announced the sale of our Singl.eView®software business.  The Singl.eView®divestiture was completed shortly after the end of the quarter.

 

These actionswill enable us to focus on our strategy of providing products and services thatprovide the foundation for every type of communications network over copper,fiber, coaxial and wireless media. These products and services include fiber optic, copper and coax basedframes, cabinets, cables, connectors, cards and other physical componentsessential to enable the delivery of communications for wireline, wireless, andcable TV networks.  Our products alsoinclude network access devices including high-bit-rate digital subscriber lineand wireless coverage solutions.  Wealso design, equip and build networks through the provision of systemsintegration services, which compliments our hardware business by enabling us tooffer bundled hardware and service offerings.

 

The KRONEacquisition has several significant strategic elements which we believe willbenefit ADC in the long term, including the following:

 

•                                          Expandssignificantly our presence in the global marketplace.  KRONE derived approximately 80% of its net sales from outside theUnited States.  In contrast,approximately 30% of ADC’s historic net sales were derived from outside

 

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the UnitedStates.  We expect the combinedcompanies to derive approximately 50% of net sales from outside of the UnitedStates.

 

•                                          Providesus with a strong established position in the enterprise customer market throughKRONE’s advanced structured cabling products, which are used to connectenterprise networks within a building or in a campus environment.  Over the long term, we expect that this willreduce our dependence on communication service provider customers.

 

•                                          Givesus greater scale by adding approximately 2,000 employees and eightmanufacturing facilities located throughout the world.

 

•                                          Createsopportunities to increase revenue by cross-selling KRONE and ADC products toeach other’s historical customers, as well as to reduce costs by eliminatingduplicative facilities, processes and personnel functions.

 

•                                          Enablesus to build our market position in important emerging markets, such as China,India and Eastern Europe, through KRONE’s established presence in thesemarkets.

 

Since the closing of the KRONEacquisition in May, we have been working diligently to integrate the operationsof the two companies and execute on the opportunities that this acquisitionprovides.

 

We intend tocontinue to explore additional product line or business acquisitions that arecomplimentary to our communications infrastructure business.  We expect to fund any potential acquisitionwith existing cash resources, the issuance of shares of common or preferredstock, the issuance of debt or equity-linked securities or through somecombination of these alternatives. We may also undertake further divestituresshould we determine a business is no longer central to our strategic goals.

 

# ***MarketplaceConditions***

 

Our operatingresults during the three and nine months ended July 31, 2004, continued tostabilize, perpetuating a trend that began in fiscal 2003.  However, overall spending on communicationsequipment and services remains at significantly lower levels compared to pre-2001levels.  Although there have beenincreases in capital investment in selected areas (including onfiber-to-the-premises initiatives by several service providers, a generalincrease in wireless spending and some signs of growth in enterprise spending),our industry continues to see deferred capital spending for communicationsequipment.  In addition, our industrycontinues to experience intense competition and increased pricing pressuresfrom customers.

 

While we donot expect the overall market for communication equipment and services to growin the near term, we believe that we are positioned to grow our sales in ourfiscal year 2005.  We believe we canachieve this sales growth due to:

 

•                                          Ournew product offerings for the fiber-to-the-premise initiative being pursued byseveral communication service providers and the growing acceptance of ourDigivanceTM wireless coverage solution;

 

•                                          Theopportunity to cross-sell products among the KRONE and ADC customer bases, ofwhich there is very little overlap; and

 

•                                          Ourability to take market share from our competitors.

 

Although we are optimisticabout our plans for growth in 2005, no assurance can be given that we will besuccessful in achieving revenue growth.

 

We continue tobe dependent on telecommunications service providers for a majority of ourrevenues, with the four major U.S. incumbent local exchange carriers (Verizon,Bellsouth, SBC and Qwest) accounting for approximately 30.6% and 37.2% of ourrevenues during the nine months ended July 31, 2004 and 2003,respectively.  In addition, our top tencustomers accounted for approximately 47.4% and 55.1% of our revenues for thenine months ended July 31, 2004 and 2003, respectively.  The decline in these customer concentrationlevels from 2003 to 2004 is largely due to the KRONE acquisition, which hasgiven us a more diversified customer base throughout the world.

 

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.  Forexample, the integration of the KRONE acquisition has presented opportunitiesto reduce

 

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costs through eliminating duplicativefacilities, processes and personnel functions. Accordingly, we anticipate incurring additional restructuring charges infuture periods.

 

Prior to thedownturn in our business beginning in fiscal 2001, our results of operationshad been subject to seasonal factors, with stronger demand for our productsduring our fourth fiscal quarter ending October 31 (primarily as a result ofcustomer budget cycles and our fiscal year-end initiatives) and weaker demandfor our products during our first fiscal quarter ending January 31 (primarilyas a result of the number of holidays in that quarter, our customers’development of annual capital budgets during that period and a general industryslowdown during that period).  Thishistorical seasonality trend in our business may or may not return.  A more detailed description of the risks toour business related to seasonality, along with other risk factors associatedwith our business, can be found in our Form 10-K for the year ended October 31,2003, in Item 1 of such report under the caption “Risk Factors.”

 

***Net Sales***

 

The followingtable sets forth information regarding our net sales for the three and ninemonths ended July 31, 2004 and 2003, respectively, for both of our reportablesegments (in millions):

 
|                                    |   | **Three  Months Ended July 31,** |   | **Nine  Months Ended July 31,** |   |
|-----------------------------------------|--------|----------------------------------|--------|---------------------------------|--------|
|                                    |   | **2004**                         |   | **2003**                        |   | **2004** |   | **2003** |   |
|                                    |   | **Net Sales**                    |   | **%**                           |   | **Net Sales** |   | **%** |   | **Net Sales** |   | **%** |   | **Net Sales** |   | **%** |   |
| **Broadband Infrastructure and Access** |   | $                                | 177.0  |                            | 75.3   | % | $ | 100.8 |   | 66.2 | % | $ | 391.8 |   | 72.7 | % | $ | 313.4 |   | 68.6 | % |
| **Integrated Solutions:**               |   |                             |   |                            |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Product                                 |   | 19.0                             |   | 8.0                             |   | 19.7 |   | 13.0 |   | 48.8 |   | 9.1 |   | 52.0 |   | 11.4 |   |
| Service                                 |   | 39.2                             |   | 16.7                            |   | 31.7 |   | 20.8 |   | 98.1 |   | 18.2 |   | 91.9 |   | 20.1 |   |
| **Total Integrated Solutions**          |   | 58.2                             |   | 24.7                            |   | 51.4 |   | 33.8 |   | 146.9 |   | 27.3 |   | 143.9 |   | 31.4 |   |
| **Total**                               |   | $                                | 235.2  |                            | 100    | % | $ | 152.2 |   | 100 | % | $ | 538.7 |   | 100 | % | $ | 457.3 |   | 100 | % |

 

Net sales were$235.2 million and $538.7 million for the three and nine months ended July 31,2004, respectively, and increased by 54.5% and 17.8%, respectively, over thecomparable 2003 periods.  Internationalsales (which we define as sales from non-U.S. sources) comprised 47.3% and31.2% of our net sales for the three and nine months ended July 31, 2004,respectively, and 38.9% and 28.1% for the three and nine months ended July 31,2003, respectively.  The increase in netsales in the 2004 periods compared to the 2003 periods, as well as the increasein percentage of international sales, was largely due to the inclusion of theKRONE results beginning on May 18, 2004.

 

During thethree and nine months ended July 31, 2004, net sales of BroadbandInfrastructure and Access products reflected a 75.6% and 25.0% increase,respectively, over the comparable 2003 periods.  Our Broadband Infrastructure and Access segment includesinfrastructure (Connectivity) and access (Wireless and Wireline) products.  The inclusion of sales by the KRONE Groupbeginning on May 18, 2004, accounts for 87.4% and 85.0% of the increase for thethree and nine months ended July 31, 2004, respectively.

 

For the threemonths ended July 31, 2004, sales of our Connectivity products and Wirelessproducts increased 115.4% and 72.6%, respectively, over the comparable 2003period.  For the nine months ended July31, 2004, net sales of Connectivity products and Wireless products increased by44.3% and 97.4%, respectively, compared to the nine months ended July 31,2003.  The inclusion of sales by theKRONE Group beginning on May 18, 2004, accounted for 83.0% and 72.9% of theincrease in Connectivity product sales for the three and nine months ended July31, 2004, respectively.  The remainingincrease in Connectivity sales was attributable primarily to increased spendingby our customers in the core central office space.  The increase in Wireless product sales was a result of anincreased acceptance of our wireless coverage products across a growingcustomer base as well as increased spending by two of our customers.

 

For the thirdquarter of fiscal 2004, net sales of our Wireline products decreased by 25.8%over the comparable 2003 period.  Forthe nine months ended July 31, 2004, net sales for Wireline products decreasedby 23.3% compared to the nine months ended July 31, 2003.  The decrease in Wireline product sales was causedby a combination of decreased volumes and price reductions.

 

During thethree and nine months ended July 31, 2004, net sales of our IntegratedSolutions products increased by 13.2% and 2.1%, respectively, from thecomparable 2003 periods.  Our IntegratedSolutions segment includes two principal product/service offerings:  systems integration (Systems Integration)services and software products for network performance management and servicelevel assurance (Software).

 

During thethree and nine months ended July 31, 2004, net sales of our Systems Integrationservices increased by 20.4% and 5.3%, respectively, over the comparable 2003periods.  The increase in SystemsIntegration service sales is due to the inclusion of

 

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sales from KRONE’s service business beginningon May 18, 2004, which was partially offset by reduced spending by asignificant customer of our Systems Integration business.  In the third quarter of 2004, sales of SystemsIntegration services to this customer decreased by 60.6% compared to the fiscal2003 third quarter when this customer accounted for 24.1% of our SystemsIntegration sales.  We believe that thiscustomer has reduced its overall spending with all of its suppliers of equipmentand services, and thus this reduction does not represent a loss of market sharefor us.  Lower sales to this customerare expected to continue to impact Systems Integration revenues negatively inthe fourth quarter of fiscal 2004 and possibly in future periods.

 

For the threeand nine months ended July 31, 2004, net sales of our Software productsdecreased by 19.4% and 13.7%, respectively, over the comparable 2003periods.  The decrease in Software salesis primarily due to reduced volumes.

 

***Gross Profit***

 

During thethree and nine months ended July 31, 2004, the gross profit percentages were37.9 % and 39.4%, respectively, compared to 37.5% and 35.6% for the same 2003periods.  For the nine months ended July31, 2004, the increase in gross profit percentage was primarily due to a more favorablesales mix toward higher margin Connectivity and Wireless products, and areduction in our fixed cost of sales as a result of our restructuringactivities.

 

In addition to a more favorable sales mix, webenefited from production efficiencies and reduced production costs resultingfrom more favorable supplier pricing and the outsourcing of portions of ourmanufacturing operations.  We anticipatethat our gross profit percentage will decline slightly in the near term due toa modest product mix shift towards lower margin fiber products and as a resultof the KRONE acquisition, because several of KRONE’s products have historicallyhad lower gross margins than ADC’s products. Over the longer term, we intend to counter this decline in gross profitpercentage through aggressive cost controls. We also anticipate that our future gross profit percentage will varyfrom quarter to quarter based on a variety factors, including sales mix, competitivepricing, timing of new product introductions, raw material prices (particularlycopper prices), timing of customer acceptance and manufacturing volume.

 

***Operating Expenses***

 

Totaloperating expenses of $86.0 million and $205.8 million for the three and ninemonths ended July 31, 2004, respectfully, increased by 48.5% over thethree-month period ended July 31, 2003, and decreased by 7.3% over the ninemonth period ended July 31, 2003.  Totaloperating expenses represented 36.6% and 38.2% net sales for the three andnine-month periods ended July 31, 2004, and 38.1% and 48.6% for the comparableperiods ended July 31, 2003.

 

For the threemonths ended July 31, 2004, 72.6% of the operating expense increase over thecomparable 2003 period was due to the addition of KRONE’s operations beginningMay 18, 2004.  For the nine months endedJuly 31, 2004, the increase in operating expenses due to KRONE was more thanoffset by a decrease in operating expenses in absolute dollars and as apercentage of revenue due to the ongoing cost savings from our restructuringefforts, bad debt recoveries, and the transition of certain manufacturingoperations to sources outside North America.

 

Research anddevelopment expenses were $18.0 million and $48.0 million for the three andnine months ended July 31, 2004, respectively, compared to $15.5 million and$51.4 million for the three and nine months ended July 31, 2003,respectively.   This represents anincrease of 16.1% and a decrease of 6.6% during the three and nine months endedJuly 31, 2004 over the comparable 2003 periods.  For the three months ended July 31, 2004, 72.0% of the increaserelated to the acquisition of KRONE, and the remaining increase was due toincreased investment in our fiber to the premise and wireless coverage****product offerings.* *For the nine months ended July 31, 2004, the increase due tothe addition of KRONE was offset by a decrease due to our previousrestructuring and ongoing cost containment efforts.  We believe that, given the rapidly changing technological andcompetitive environment in the communications equipment industry, continuedcommitment to product development efforts will be required for us to remaincompetitive.  Accordingly, we intend tocontinue to allocate substantial resources, as a percentage of our net sales,to product development in each of our segments.

 

Selling andadministration expenses were $67.3 million and $143.5 million for the three andnine months ended July 31, 2004, respectively, compared to $36.6 million and$133.1 million for the three and nine months ended July 31, 2003, respectively.This represents an increase of 83.9% and 7.8% during the three and nine monthsended July 31, 2004 over the comparable 2003 periods.* *For the three months and nine months ended July 31, 2004,60.3% and 177.9%, respectively, of the increase over the comparable 2003periods is due to the addition of KRONE selling and administrative costs.  The primary reasons for the remainingyear-over-year increase in the three months ended July 31, 2004, were $3.8million of integration costs related to the KRONE acquisition, an accrual of$5.0 million for anticipated fiscal 2004 incentive compensation payments, and a$1.8 million reserve on a note receivable relating to a sale of afacility.  For the nine months endedJuly 31, 2004, the increase related to KRONE activities is offset by decreasesdue to the benefits realized from our prior restructuring actions*.*

 

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We incurred noimpairment charges for the three months ended July 31, 2004, and incurred $1.5million of impairment charges for the nine months ended July 31, 2004.  During the comparable 2003 periods, weincurred impairment charges of $0.2 million and $14.8 million.  For the three and nine months ended July 31,2004, the charges primarily related to impairment of property included inassets held for sale.  For the three andnine months ended July 31, 2003, the impairment charges consisted solely ofproperty and equipment impairments, which impacted both the BroadbandInfrastructure and Access and Integrated Solutions segments.  The impairment charges were the result ofour plan to dispose of excess equipment that stemmed from our decision tostreamline and reduce the size of our operations.  The fair market value of the disposed equipment was determined by****obtainingthe prices of comparable items being sold in the open market by third parties.

 

Restructuringcharges were $0.7 million and $12.8 million for the three and nine months endedJuly 31, 2004, respectively.  For thethree and nine months ended July 31, 2004, these charges consisted of $0.6million and $2.7 million of severance costs, respectively, and $0.1 million and$10.1 million for facility consolidation and lease termination costs,respectively. Restructuring charges were $5.6 million and $22.8 million for thethree and nine months ended July 31, 2003, respectively.  For the three and nine months ended July 31,2003, restructuring charges consisted of $3.4 million and $20.6 million ofseverance costs, respectively, and $2.2 million and $2.2 million for facilityconsolidation and lease termination costs, respectively.  Approximately 70 and 190 employees wereimpacted by reductions in force for the three and nine months ended July 31, 2004,respectively, compared to approximately 220 and 1,240 employees impacted forthe three and nine months ended July 31, 2003, respectively.  The employee reductions occurred primarilyin our Integrated Solutions segment.  Asmentioned previously, we anticipate that our efforts to realize the costsavings opportunities presented by the KRONE acquisition will result inadditional restructuring charges.

 

***Other Income(Expense), Net***

 

The followingtable provides a breakdown of other income and expenses for the three and ninemonths ended July 31, 2004 and 2003 (in millions):

 
|                                              |   | **Three  months ended  July 31,** |   | **Nine  months ended  July 31,** |   |
|---------------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                              |   | **2004**                          |   | **2003**                         |   | **2004** |   | **2003** |   |
| Interest income                                   |   | $                                 | 0.6    |                             | $      | 0.9 |   | $ | 2.9 |   | $ | 3.5 |   |
| Gain (Loss) on sale of product lines              |   | —                            |   | —                           |   | 3.6 |   | (2.8 | ) |
| Gain (Loss) on write-down or sale of  investments |   | 0.4                               |   | —                           |   | 4.8 |   | (0.8 | ) |
| Gain (Loss) on sale of fixed assets               |   | —                            |   | (0.6                             | )      | 0.3 |   | (1.6 | ) |
| Other                                             |   | (0.7                              | )      | (2.0                             | )      | (2.5 | ) | 0.2 |   |
| **Total Other Income (Expense)**                  |   | $                                 | 0.3    |                             | $      | (1.7 | ) | $ | 9.1 |   | $ | (1.5 | ) |

 

***Income Taxes***

 

Our effectiveincome tax rate from continuing operations for the three and nine months endedJuly 31, 2004, was 8.6% and 4.5%, respectively.  Our effective tax rate for the three and nine months ended July31, 2003 was zero.  No income taxbenefit was provided on our pretax losses for these periods as the deferred taxassets generated by the losses have been offset with a corresponding valuationreserve.  We have provided a fullvaluation reserve to offset a substantial portion of our deferred tax assetssince our third quarter of fiscal 2002 as a result of our cumulative losses ofthe past three fiscal years and the full utilization of our loss carrybackpotential.  We will continue to maintaina full valuation reserve on a substantial portion of our deferred tax assetsuntil we have sustained a level of profitability that demonstrates our abilityto utilize the deferred assets in the future. Until that time, we do not expect to record significant income taxexpense or benefit.  A more detaileddescription of the accounting standards related to the utilization of deferredtax assets is found in Note 10 to the financial statements included in thisForm 10-Q.

 

***DiscontinuedOperations***

 

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,” thisbusiness was classified as a discontinued operation in the first quarter offiscal 2004, and its financial results are reported separately as discontinuedoperations for all periods presented. This transaction closed on February 24, 2004.  We estimated the loss on the sale of the business based on thevalue of the business’ assets and liabilities as of January 31, 2004.  Subsequent to January 31, 2004, adjustmentsof $3.0 million were made to the previous estimate and increased theyear-to-date loss on the transaction to $6.7 million.

 

The purchasersof the BroadAccess40 business acquired all of the stock of our subsidiary thatoperated this business and assumed substantially all liabilities associatedwith the business, with the exception of a $7.5 million note payable that waspaid in full by us prior to the closing of the transaction.  The purchasers issued a promissory noteto us for $3.8 million that is payable within two years of theclosing.

 

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During the third quarter of fiscal 2004, we entered into an agreementto sell the business related to our CudaTM cable modem termination systemproduct line and related FastFlowÒBroadband Provisioning Manager software to BigBand Networks, Inc.  This business had been included in ourBroadband Infrastructure and Access segment. In consideration for this sale, we were issued a non-voting minorityinterest in BigBand.  We also providedBigBand with a non-revolving credit facility of up to $12.0 million with a termof three years.  As of July 31, 2004,$7.0 million was drawn on the credit facility. This transaction closed on June 29, 2004.  We classified this business as a discontinued operation beginningin the third quarter of fiscal 2004, and recorded a loss on divestiture of $2.6million based on the value of the business’ assets and liabilities at the closeof the transaction.

 

During the third quarter of fiscal 2004, we entered into an agreementto sell the business related to our Singl.eView® product line to Intec TelecomSystems PLC for a cash purchase price of $74.5 million, subject to purchaseprice adjustments.  This business hadbeen included in our Integrated Solutions segment.  We also agreed to provide Intec with a $6.0 million non-revolvingcredit facility with a term of 18 months. The transaction closed on August 27, 2004, and we received net cashproceeds of $71.2 million after funding a $4 million draw on the creditfacility.  We classified this businessas a discontinued operation in the third quarter of fiscal 2004.  We do not anticipate incurring a loss on thesale of this business.

 

Certainfinancial information regarding our BroadAccess40, CudaTM/ FastFlowÒand Singl.eViewÒ product lines included in discontinuedoperations is set forth below (in millions):

 
|                                          |   | **Three  Months Ended  July 31,** |   | **Nine  Months Ended  July 31,** |   |
|-----------------------------------------------|--------|-----------------------------------|--------|----------------------------------|--------|
|                                          |   | **2004**                          |   | **2003**                         |   | **2004** |   | **2003** |   |
|                                          |   |                              |   |                             |   |   |   |   |   |
| Revenues                                      |   | $                                 | 15.8   |                             | $      | 36.3 |   | $ | 67.9 |   | $ | 123.0 |   |
|                                          |   |                              |   |                             |   |   |   |   |   |
| Loss from discontinued  operations            |   | $                                 | (10.7  | )                                | $      | (12.5 | ) | $ | (49.0 | ) | $ | (25.1 | ) |
| Loss on divestiture of subsidiaries           |   | (6.8                              | )      | —                           |   | (9.3 | ) | — |   |
| Loss from discontinued  operation, net of tax |   | $                                 | (17.5  | )                                | $      | (12.5 | ) | $ | (58.3 | ) | $ | (25.1 | ) |

 

***Net Loss***

 

Net loss was$14.3 million (or $0.02 per diluted share) and $43.3 million (or $0.05 perdiluted share) for the three and nine months ended July 31, 2004, respectively,compared to a net loss of $15.1 million (or $0.02 per diluted share) and $86.0million (or $0.11 per diluted share) for the three and nine months ended July31, 2003, respectively.

 

**Application ofCritical Accounting Policies and Estimates**

 

There were nosignificant changes to our critical accounting policies during the nine monthsended July 31, 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 money market investments withmaturities of less than 90 days, was $413.9 million at July 31, 2004, adecrease of $304.8 million from cash and cash equivalents at October 31,2003.  The decrease in cash during thenine month period was due to the following:

 

•                                          Netcash used in operating activities was $18.9 million, which consisted of $37.3million of cash used in our discontinued operations partially offset by $18.4million of cash provided by our continuing operations.

 

•                                          Cashused for investing activities included net cash of $293.1 million paid for theacquisition of KRONE, capital expenditures of $10.4 million, and an increase inrestricted cash of $4.2 million.  Theseuses of cash were offset by net sale of investments of $15.9 million, proceedsof asset sales of $10.8 million and proceeds of $3.7 million from thedivestiture of product lines.  As aresult, net cash used for investing activities was $278.1 million.

 

•                                          Cashused for financing activities was $6.9 million due to the repayment of debt of$10.2 million, primarily inconnection with the sale of our Broadband Access40 business, which was offsetby the issuance of common stock of $3.3 million related to employeestock incentive plans.

 

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As of July 31,2004, restricted cash was $19.8 million, which represents cash pledged tovarious financial institutions to secure certain of our obligations, primarilycash collateral for letters of credit and lease obligations.  Restricted cash is not available to us forworking capital.  The restricted cash isexpected to become available to us upon satisfaction of the obligationsrelating to the letters of credit and lease obligations.  We are entitled to the interest earnings onour restricted cash balances.

 

During thenine months ended July 31, 2003, cash increased $464.8 million compared toOctober 31, 2002.  Our primarysources of cash for the nine months ended July 31, 2003, included net proceedsof $355.5 million from the issuance of convertible unsecured subordinatednotes, $132.9 million in income tax refunds and a $154.5 reduction inrestricted cash.  Of the $154.5 millionreduction in restricted cash, $148.2 million was used to purchase fourproperties subject to synthetic leases. In addition, $14.3 million of previously restricted cash was used to paya guarantee of a customer note receivable.

 

**LongTerm Debt**

 

As of July 31,2004, we had $400.0 million of convertible unsecured subordinated notesoutstanding, consisting of $200.0 million in 1.0% fixed rate convertibleunsecured subordinated notes maturing on June 15, 2008, and $200.0 millionof convertible unsecured subordinated notes with a variable interest rate andmaturing on June 15, 2013.  Theinterest rate for the variable rate notes is equal to the 6-month LIBOR plus0.375%.  The interest rate for thevariable rate notes will be reset on each semi-annual interest payment date(i.e., which are June 15 and December 15 of each year beginning onDecember 15, 2003, for both the fixed and variable rate notes). Theinterest rate on the variable notes is 2.235% for the period ending December15, 2004.  The holders of both the fixedand variable rate notes may convert all or some of their notes into shares ofour common stock at any time prior to maturity at a conversion price of $4.013per share.  We may not redeem the fixedrate notes anytime prior to their maturity date.  We may redeem any or all of the variable rate notes at any timeon or after June 23, 2008.

 

**Vendor Financing**

 

We have workedwith customers and third-party financiers to find a means of funding customerequipment purchases from us.  As of July31, 2004 and 2003, we had commitments to extend credit of approximately $18.1million and $57.7 million, respectively, under such arrangements. The totalamount drawn and outstanding under the commitments was approximately $18.1million and $21.5 million as of July 31, 2004 and 2003, respectively. Thecommitments to extend credit are conditional agreements generally having fixedexpiration or termination dates and specific interest rates, conditions andpurposes. These commitments may expire without being drawn.  Some of these commitments enable thecustomer to draw on the commitment after the customer has made payment to usfor the products we sold, up to the amount the customer previously paid tous.  Accordingly, amounts committed mayaffect future cash flows.  We regularlyreview all outstanding commitments, and the results of these reviews areconsidered in assessing the overall risk for possible credit losses. At July31, 2004, we have recorded $17.7 million in loss reserves in the event ofnon-performance under these financing arrangements.

 

**Working Capital Outlook**

 

Workingcapital (current assets less current liabilities) decreased by $274.6 millionduring the nine months ended July 31, 2004, primarily due to the cash paid forKRONE.  Working capital will increase ordecrease with quarterly sales levels and the timing of revenue and billingsduring the quarter.

 

We believe thatour current unrestricted cash on hand, together with the proceeds of ourSingl.eViewâ divestiturereceived on August 27, 2004, will be adequate to fund our working capitalrequirements, planned capital expenditures, and restructuring costs through fiscal2004 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 Statementfor Purposes of the “Safe Harbor” Provisions of the Private SecuritiesLitigation Reform Act of 1995**

 

The foregoing Management’s Discussion and Analysis of FinancialCondition and Results of Operations, as well as the Notes to the CondensedConsolidated Financial Statements, contain various “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended. Forward-looking statements represent our expectations or beliefsconcerning future events, including but not limited to the following: anystatements regarding future sales, profit percentages, earnings per share andother results of operations, our estimates of probable liabilities relating topending litigation, the continuation of historical trends, the sufficiency ofour cash balances and cash generated from operating and financing activitiesfor our future liquidity and capital resource needs and the effect of regulatorychanges.  We caution that anyforward-looking statements made by us in this report or in other announcementsmade by us are qualified by important factors

 

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that could 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 the communicationsequipment industry which began in 2001, particularly with respect to the demandfor equipment by telecommunication service providers, from which a majority ofour revenues are derived; our ability to restructure our business to achieveoperating profitability; macroeconomic factors that influence the demand fortelecommunications services and the consequent demand for communicationsequipment; possible consolidation among our customers or competitors, whichcould cause disruption in our customer relationships or displacement of us asan equipment vendor to the surviving entity in a customer consolidation; ourability to keep pace with rapid technological change in our industry; ourability to make the proper strategic choices with respect to product lineacquisitions or divestitures; our ability to successfully integrate the KRONEacquisition or other businesses we may acquire into our overall operations;increased competition within our industry and increased pricing pressure fromour customers; our dependence on relatively few customers for a substantialportion of our revenues; fluctuations in our operating results fromquarter-to-quarter, which are influenced by many factors outside of ourcontrol, including variations in demand for particular products in ourportfolio which have varying profit margins; the impact of regulatory changeson our customers’ willingness to make capital expenditures for our products andservices; financial problems, work interruptions in operations or otherdifficulties faced by some of our customers, which can influence future salesto these customers as well as our ability to collect amounts due us; economicand regulatory conditions outside of the United States, including changes inexchange rates of the U.S. dollar into foreign currencies, as approximately 50%of our sales presently come from non-U.S. jurisdictions; our ability to protectour intellectual property rights and defend against infringement claims made bythird parties; possible limitations on our ability to raise additional capitalif required; our ability to attract and retain qualified employees; our abilityto maintain key competencies during a period of reduced resources andrestructuring; potential liabilities that could arise if there are design ormanufacturing defects with respect to any of our products; our ability toobtain raw materials and components, and our increased dependence on contractmanufacturers to make certain of our products; changes in interest rates,foreign currency exchange rates and equity securities prices, all of which willimpact 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 QUALITATIVE DISCLOSURESABOUT 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 exposedto interest rate risk as a result of issuing, on June 4, 2003, $200.0 millionof convertible unsecured 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.

 

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 July 31, 2004, our outstandingdeferred compensation obligation related to the 401(k) excess plan was $5.6million, of which $1.1 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 $1.1 million, $2.8 million and $5.6 million, respectively, and wewould incur an expense of a like amount.

 

We are exposedto market risk from changes in foreign exchange rates.  Our operations outside the United States haveincreased significantly due to the acquisition of KRONE in May 2004.  In addition, as part of the KRONEacquisition, our consolidated liabilities include an unfunded pensionobligation relating to KRONE’s German workforce (approximately $60 million at July31, 2004) which is payable in euros.

 

**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,

 

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processed, summarized andreported, within the time periods specified in the applicable rules andforms.  During the period covered bythis Quarterly Report on Form 10-Q, there was no change in our internal controlover financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)that materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

**PARTII.  OTHER INFORMATION**

 

**ITEM 1. LEGAL PROCEEDINGS**

 

On March 5, 2003,we were served with a shareowner lawsuit brought by Wanda Kinermon that wasfiled in the United States District Court for the District of Minnesota.  The complaint named ADC, William J. Cadogan,our former Chairman and Chief Executive Officer, and Robert E. Switz, our ChiefExecutive Officer and former Chief Financial Officer, as defendants.  After this lawsuit was served, we were namedas a defendant in 11 other substantially similar lawsuits.  These shareowner lawsuits were consolidatedinto a single lawsuit, that is captioned In Re ADC Telecommunications, Inc.Securities Litigation.  This lawsuitpurports to bring suit on behalf of a class of purchasers of our publiclytraded 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.  Theplaintiffs have appealed this decision to the Eighth Circuit Court of Appealsand that appeal is pending.

 

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 our RetirementSavings 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, which was denied by the court.  This case is now in the discovery phase.

 

We are a partyto various other lawsuits, proceedings and claims arising in the ordinarycourse of business or otherwise.  Theamount of monetary liability that could result from an adverse result in theselawsuits, proceedings or claims cannot be determined at this time.  As of July 31, 2004, we had recorded $5.1million in loss reserves in the event of such adverse outcomes in these matters.  Because litigation by its nature isuncertain, 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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

None.

 

## **ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

## **ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

## **ITEM 5. OTHER INFORMATION**

 

None.

## ** **

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

 

a.                                       Exhibits

 

See Exhibit Index on page 23 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 security holder upon request a copy of any Exhibit at cost.

 

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b.                                      Reportson Form 8-K

 

We filed orfurnished the following Current Reports on Form 8-K during the quarter endedJuly 31, 2004:

 
| **Date**      |   | **Item  Reported**                                                       |
|---------------|--------|--------------------------------------------------------------------------|
| May 19, 2004  |   | Items 7, 9, and 12 – Second quarter 2004 financial results.         |
| June 2, 2004  |   | Items 2, 7 and 9 – Acquisition of the KRONE Group from GenTek, Inc. |
| July 13, 2004 |   | Items 2 and 7 – Divestiture of the Cuda Business.                   |

 

**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:  September 13, 2004 | ADC TELECOMMUNICATIONS, INC. |
|---------------------------------|------------------------------|
|                            |                         |   |
|                            | By:                          | /s/ Gokul V. Hemmady |   |
|                            |                         | Gokul V. Hemmady |
|                            |                         | Vice President, Chief Financial Officer   (Principal Financial Officer and Duly Authorized Officer) |

 

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**ADCTELECOMMUNICATIONS, INC.EXHIBIT INDEX TO FORM 10-QFOR THE THREE MONTHS ENDED JULY 31, 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.) |
| 10-a             |   | Letter  Agreement of employment between ADC Telecommunications, Inc. and Ronald A.  Lowy dated March 24, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10-b             |   | KRONE  Acquisition Key Employee Retention Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10-c             |   | Terms of  Ronald A. Lowy Individual Award Letter under the KRONE Acquisition Key  Employee Retention Plan.                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10-d             |   | Form of  Restricted Stock Unit Award Agreement used for grants to employees under the  Global Stock Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 10-e             |   | Form of  Restricted Stock Unit Award Agreement used for non-employee directors under  the Global Stock Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10-f             |   | Form of  Nonqualified Stock Option Agreement used for non-employee directors under the  Global Stock Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10-g             |   | Form of  Nonqualified Stock Option Agreement used for non-employee directors under the  Compensation Plan for Non-Employee Directors.                                                                                                                                                                                                                                                                                                                                                                                                  |
| 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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