SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

(Mark One)

||X| | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended July 29, 2005OR

||_| | TRANSACTION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | -----------------------------------------------------------------------------------------

For the transition period from N/A to N/A

Commission file number 0-1424

ADC Telecommunications, Inc.

(Exact name of registrant as specified in its charter)

|                                                               | 
|-------------------------------------------------------------- | 
|Minnesota                                                      | 
|(State or other jurisdiction of incorporation or organization) | 

13625 Technology Drive, Eden Prairie, MN 55344-2252

(Address of principal executive offices)(Zip code)

(952) 938-8080

(Registrants telephone number, including area code)



N/A

(Former name, former address and former fiscal year, if changed since last report)



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

Yes     |X|     No     |_|

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes     |X|     No     |_|



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes     |  |     No     |X|



Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.

Common stock, $.20 par value: 116,501,400 shares as of September  2 , 2005







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**PART
  1. FINANCIAL INFORMATION**



ITEM
  1.  FINANCIAL STATEMENTS




ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS  UNAUDITED (In
millions)







|                                                                                          |  |  |  | July 29,2005 |         | October 31, 2004
|----------------------------------------------------------------------------------------- |  |  |  | ------------ | ------- | ----------------
|ASSETS                                                                                    |  |  |  |              |         |                 
|Current
Assets:                                                                           |  |  |  |              |         |                 
|Cash and
cash equivalents                                                                 |  |  |  | $            | 101.2   |                 
|Available-for-sale securities                                                             |  |  |  |              | 474.3   |                 
|Accounts
receivable, net of allowance of $11.3 and $15.8, respectively                    |  |  |  |              | 203.8   |                 
|Unbilled
revenue                                                                          |  |  |  |              | 39.6    |                 
|Inventories,
net of reserve of $36.5 and $41.9, respectively                              |  |  |  |              | 130.0   |                 
|Prepaid and
other current assets                                                          |  |  |  |              | 34.9    |                 
|Assets of
discontinued operations                                                         |  |  |  |              |        |                 
|Total
current assets                                                                      |  |  |  |              | 983.8   |                 
|Property
and equipment, net of accumulated depreciation of$337.2 and $307.6, respectively |  |  |  |              | 217.3   |                 
|Restricted cash                                                                           |  |  |  |              | 16.5    |                 
|Goodwill                                                                                  |  |  |  |              | 172.5   |                 
|Intangibles, net of accumulated amortization of $24.8 and$13.9, respectively              |  |  |  |              | 89.9    |                 
|Available-for-sale securities                                                             |  |  |  |              | 16.6    |                 
|Other
assets                                                                              |  |  |  |              | 19.6    |                 
|Total
assets                                                                              |  |  |  | $            | 1,516.2 |                 
|                                                                                          |  |  |  |              |         |                 
|LIABILITIES AND SHAREOWNERS INVESTMENT                                                   |  |  |  |              |         |                 
|Current
Liabilities:                                                                      |  |  |  |              |         |                 
|Accounts
payable                                                                          |  |  |  | $            | 80.4    |                 
|Accrued
compensation and benefits                                                         |  |  |  |              | 69.4    |                 
|Other
accrued liabilities                                                                 |  |  |  |              | 75.1    |                 
|Income taxes
payable                                                                      |  |  |  |              | 19.7    |                 
|Restructuring accrual                                                                     |  |  |  |              | 29.1    |                 
|Liabilities
of discontinued operations                                                    |  |  |  |              |        |                 
|Total
current liabilities                                                                 |  |  |  |              | 273.7   |                 
|Pension
obligations and other long-term liabilities                                       |  |  |  |              | 65.1    |                 
|Long-term
notes payable                                                                   |  |  |  |              | 400.0   |                 
|Total
liabilities                                                                         |  |  |  |              | 738.8   |                 
|Shareowners Investment:                                                                  |  |  |  |              |         |                 
|(116.4 and
115.7 shares outstanding, respectively)                                        |  |  |  |              | 777.4   |                 
|Total
liabilities and shareowners investment                                             |  |  |  | $            | 1,516.2 |                 



See accompanying notes to unaudited condensed consolidated
financial statements.




2


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ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED (In millions, except
per share amounts)







|                                            |  |  |  | Three Months Ended |       | Nine Months Ended | 
|------------------------------------------- |  |  |  | ------------------ | ----- | ----------------- | 
|
|Net
Sales:                                  |  |  |  |                    |       |                   | 
|Product                                     |  |  |  | $                  | 272.4 |                   | 
|Service                                     |  |  |  |                    | 42.2  |                   | 
|Total Net
Sales                             |  |  |  |                    | 314.6 |                   | 
|                                           
|Cost of
Sales:                              |  |  |  |                    |       |                   | 
|Product                                     |  |  |  |                    | 160.5 |                   | 
|Service                                     |  |  |  |                    | 38.3  |                   | 
|Total Cost of
Sales                         |  |  |  |                    | 198.8 |                   | 
|                                           
|Gross Profit                                |  |  |  |                    | 115.8 |                   | 
|                                           
|Operating
Expenses:                         |  |  |  |                    |       |                   | 
|Research and
development                    |  |  |  |                    | 18.4  |                   | 
|Selling and
administration                  |  |  |  |                    | 63.5  |                   | 
|Impairment
charges                          |  |  |  |                    |      |                   | 
|Restructuring
charges                       |  |  |  |                    | 1.0   |                   | 
|Total
Operating Expenses                    |  |  |  |                    | 82.9  |                   | 
|                                           
|Operating
Income                            |  |  |  |                    | 32.9  |                   | 
|                                           
|Other Income,
Net                           |  |  |  |                    | 2.7   |                   | 
|Income Before
Income Taxes                  |  |  |  |                    | 35.6  |                   | 
|Provision for
Income Taxes                  |  |  |  |                    | 1.5   |                   | 
|Income from
Continuing Operations           |  |  |  |                    | 34.1  |                   | 
|                                           
|Discontinued
Operations, Net of Tax:        |  |  |  |                    |       |                   | 
|Loss from
discontinued operations           |  |  |  |                    | (2.8  | )                 | 
|Loss Gain on
sale of subsidiaries           |  |  |  |                    | (7.4  | )                 | 
|                                            |  |  |  |                    | (10.2 | )                 | 
|Net Income
(Loss)                           |  |  |  | $                  | 23.9  |                   | 
|Average Common
Shares Outstanding (Basic)   |  |  |  |                    | 116.0 |                   | 
|Average Common
Shares Outstanding (Diluted) |  |  |  |                    | 131.4 |                   | 
|                                           
|Basic
Earnings (Loss) Per Share:            |  |  |  |                    |       |                   | 
|Continuing
operations                       |  |  |  | $                  | 0.29  |                   | 
|Discontinued
operations                     |  |  |  | $                  | (0.09 | )                 | 
|Basic income
(loss) per share               |  |  |  | $                  | 0.20  |                   | 
|                                           
|Diluted
Earnings (Loss) Per Share:          |  |  |  |                    |       |                   | 
|Continuing
operations                       |  |  |  | $                  | 0.28  |                   | 
|Discontinued
operations                     |  |  |  | $                  | (0.08 | )                 | 
|Diluted income
(loss) per share             |  |  |  | $                  | 0.20  |                   | 



See accompanying notes to unaudited condensed consolidated
financial statements.




3


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ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITED (In
millions)







|                                                                                                                                        |  |  |  | Nine Months Ended |      
|--------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ----------------- | -----
|
|Operating
Activities:                                                                                                                   |  |  |  |                   |      
|Net income
from continuing operations                                                                                                   |  |  |  | $                 | 83.0 
|Adjustments
to reconcile net income from continuing operations to net cash provided by operating activities from continuing operations: |  |  |  |                   |      
|Impairments                                                                                                                             |  |  |  |                   | 0.1  
|Depreciation
and amortization                                                                                                           |  |  |  |                   | 41.5 
|Change in
bad debt reserves                                                                                                             |  |  |  |                   | (2.8 
|Change in
inventory reserves                                                                                                            |  |  |  |                   | 1.9  
|Change in
warranty reserves                                                                                                             |  |  |  |                   | (1.8 
|Non-cash
stock compensation                                                                                                             |  |  |  |                   | 2.2  
|Gain on sale
of investments                                                                                                             |  |  |  |                   |     
|Gain on sale
of business                                                                                                                |  |  |  |                   |     
|Gain on sale
of property and equipment                                                                                                  |  |  |  |                   | (4.5 
|Other,
net                                                                                                                              |  |  |  |                   | 1.1  
|Changes in
operating assets and liabilities, net of acquisitionsand divestitures:                                                       |  |  |  |                   |      
|Accounts
receivable and unbilled revenues                                                                                               |  |  |  |                   | (52.7
|Inventories                                                                                                                             |  |  |  |                   | (30.7
|Prepaid and
other assets                                                                                                                |  |  |  |                   | (13.5
|Accounts
payable                                                                                                                        |  |  |  |                   | 4.4  
|Accrued
liabilities                                                                                                                     |  |  |  |                   | (18.0
|Total cash
(used by) provided by operating activities from continuing operations                                                        |  |  |  |                   | 10.2 
|Total cash
(used by) provided by operating activities from discontinued operations                                                      |  |  |  |                   | (2.3 
|Total cash
(used by) provided by operating activities                                                                                   |  |  |  |                   | 7.9  
|Investing
Activities:                                                                                                                   |  |  |  |                   |      
|Acquisitions, net of cash acquired                                                                                                      |  |  |  |                   | (7.1 
|Divestitures, net of cash disposed                                                                                                      |  |  |  |                   | 33.6 
|Property and
equipment additions                                                                                                        |  |  |  |                   | (16.5
|Proceeds
from sale and satisfaction of notes receivable                                                                                 |  |  |  |                   | 18.2 
|Proceeds
from disposal of property and equipment                                                                                        |  |  |  |                   | 16.7 
|Change in
restricted cash                                                                                                               |  |  |  |                   | 5.4  
|Change in
available-for-sale securities                                                                                                 |  |  |  |                   | (29.8
|Total cash
(used by) provided by investing activities                                                                                   |  |  |  |                   | 20.5 
|Financing
Activities:                                                                                                                   |  |  |  |                   |      
|Repayments
of debt                                                                                                                      |  |  |  |                   | (0.2 
|Common stock
issued                                                                                                                     |  |  |  |                   | 11.4 
|Total cash
provided by (used by) financing activities                                                                                   |  |  |  |                   | 11.2 
|Effect of
Exchange Rate Changes on Cash                                                                                                 |  |  |  |                   | (4.6 
|Increase
(Decrease) in Cash and Cash Equivalents                                                                                        |  |  |  |                   | 35.0 
|Cash and
Cash Equivalents, beginning of period                                                                                          |  |  |  |                   | 66.2 
|Cash and
Cash Equivalents, end of period                                                                                                |  |  |  | $                 | 101.2



See accompanying notes to unaudited condensed consolidated
financial statements.




4


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ADC TELECOMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
UNAUDITED




Note 1  Basis of Presentation:




These interim unaudited condensed
consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission
(SEC). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for
complete financial statements. The interim information furnished in this report reflects all normal recurring adjustments, which are necessary, in the
opinion of our management, for a fair statement of the results for the interim periods. The operating results for the three and nine month periods
ended July 29, 2005 are not necessarily indicative of the operating results to be expected for the full fiscal year. These statements should be read in
conjunction with our most recent Annual Report filed on Form 10-K for the fiscal year ended October 31, 2004.




Fiscal Year




Our quarters end on the last
Friday of the calendar month for the respective quarter end. Our fiscal year end is October 31. As a result, any quarter may have greater or fewer days
than other quarters in a fiscal year.




Reverse Stock Split




On April 18, 2005, we announced a
one-for-seven reverse split of our common stock. The effective date of the reverse split was May 10, 2005. All share, share equivalent and per share
amounts have been adjusted to reflect the reverse stock split as if it had occurred on November 1, 2003.




Recently Issued Accounting
Pronouncements




In December 2004, the Financial
Accounting and Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based
Payment (SFAS 123R), which replaces SFAS No. 123, Accounting for Stock-Based Compensation, and amends SFAS No. 95,
Statement of Cash Flows. SFAS 123R requires companies to recognize in their income statements the grant-date fair value of stock options
and other equity-based compensation issued to employees. On April 14, 2005, the SEC issued a new rule that amends the required effective dates for SFAS
123R. As a result of the SEC amendment, we will adopt SFAS 123R in the first quarter of fiscal 2006. The SEC amendment does not change the accounting
required under SFAS 123R.




We will implement SFAS 123R under
the modified prospective transition method. Under the modified prospective transition method, awards that are granted, modified or settled after the
date of adoption will be measured and accounted for in accordance with SFAS 123R. Compensation cost for awards granted prior to, but not vested as of,
the date we adopt SFAS 123R would be based on the grant date fair value and attributes originally used to value those awards. We expect that the
adoption of this standard will reduce fiscal 2006 net income by approximately $7.5 million. This estimate is based on the number of options currently
outstanding and exercisable and could change based on the number of options granted or forfeited in fiscal 2005 and fiscal 2006. SFAS 123R also
requires the benefits of tax deductions in excess of recognized compensation cost to be reported as cash flow from financing activities, rather than as
cash flow from operating activities as required under current accounting rules or practices. We expect that the adoption of this standard will not
initially impact our operating or financing cash flows due to our current tax situation.




In November 2004, the FASB issued
Statement of Financial Accounting Standards No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4 (SFAS 151), which
requires that abnormal amounts of idle capacity and spoilage costs are to be excluded from the cost of inventory and expensed when incurred. The
provisions of SFAS 151 are applicable to inventory costs incurred during fiscal years beginning after June 15, 2005, which will be our fiscal year
beginning November 1, 2005. We expect the adoption of this standard will have minimal impact on our financial statements.




5


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Summary of Significant Accounting
Policies




A detailed description of our
significant accounting policies can be found in our most recent Annual Report filed on Form 10-K for the fiscal year ended October 31, 2004. There have
been no significant changes to our significant accounting policies during the three and nine months ended July 29, 2005.




Reclassifications




Certain prior year amounts have
been reclassified to conform to the current year presentation. These reclassifications have no effect on reported earnings. Auction rate securities,
which previously had been classified as cash and cash equivalents, are now classified as current available-for-sale securities for all periods
presented. This reclassification had no impact on current assets, working capital, or any amounts reported on the statement of operations. Changes in
available-for-sale securities are shown in the investing section of the statement of cash flows. As of July 29, 2005, October 31, 2004, and July 31,
2004, we held auction rate securities with a value of $451.0 million, $427.3 million and $352.0 million, respectively.




Note 2  Stock-Based Compensation:




We recognize and measure our
stock compensation by the intrinsic value method in accordance with Accounting Principles Board Opinion 25, Accounting for Stock Issued to
Employees, and related interpretations. 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 grant over the amount that the employee is required to pay for the stock. No compensation expense was
recognized for options issued in the first nine months of fiscal 2005 and fiscal 2004 because all stock options were issued with an exercise price
equal to the fair market value of our common stock on the date of grant. Stock compensation is awarded to certain key employees in the form of stock
options and restricted stock grants and, beginning on March 2, 2004, in the form of restricted stock units. The recipients of restricted stock grants
and restricted stock units do not pay for the awards.




Compensation cost for restricted
stock grants and restricted stock units is equal to the fair market value of the underlying shares on the date an award is made and is amortized over
the projected remaining vesting period.




Under the disclosure provisions
of SFAS No. 148, Accounting for Stock-Based Compensation, we must disclose, on a quarterly basis, how stock compensation expense would be
computed under SFAS 123, using the fair value method. We estimated the fair value using the Black-Scholes option-pricing model. The following table
summarizes what our operating results would have been if the fair value method of accounting for stock options had been utilized (in millions, except
for per share amounts):







|                                                                                  |  |  |  | Three Months Ended |      | Nine Months Ended | 
|--------------------------------------------------------------------------------- |  |  |  | ------------------ | ---- | ----------------- | 
|
|Net income
(loss) as reported                                                     |  |  |  | $                  | 23.9 |                   | 
|Plus:
Stock-based employee compensationexpense included in reported income (loss) |  |  |  |                    | 0.7  |                   | 
|Less: Stock
compensation expense  fair value based method                        |  |  |  |                    | (5.1 | )                 | 
|Pro forma net
income (loss)                                                       |  |  |  | $                  | 19.5 |                   | 
|Income (Loss)
Per Share  Basic and Diluted                                       |  |  |  |                    |      |                   | 
|As reported
 Basic                                                               |  |  |  | $                  | 0.20 |                   | 
|As reported
 Diluted                                                             |  |  |  | $                  | 0.20 |                   | 
|Pro forma
 Basic                                                                 |  |  |  | $                  | 0.17 |                   | 
|Pro forma
 Diluted                                                               |  |  |  | $                  | 0.17 |                   | 



During the third quarter of
fiscal 2003, we offered eligible employees the right to exchange certain of their employee stock options for a lesser number of new options to be
granted six months and one day following the surrender of their existing options. The new options, which were granted on December 29, 2003, have an
exercise price of $19.81 per share, which is equal to the average of the high and low trading price of our common stock




6


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on the grant date, as
adjusted for our recent one-for-seven reverse stock split. These options vest over the two-year period from the grant date. For purposes of the above
tabular disclosure, the unrecognized compensation cost of the cancelled options and the incremental fair value of the replacement options are being
amortized over a 31-month period, consisting of the 24-month vesting period for the replacement options and the six month and one day period between
the cancellation of the surrendered options and the grant of the replacement options.




Note 3  Acquisitions:




KRONE




On May 18, 2004, we completed the
acquisition of the KRONE group (KRONE), a global supplier of connectivity solutions and cabling products used in public access and
enterprise networks, from GenTek, Inc. This acquisition has increased our network infrastructure business and expanded our presence in the
international marketplace. The results of KRONE subsequent to May 18, 2004 are included in our results of operations.




The following table summarizes
the allocation of the purchase price to the fair values of the assets acquired and liabilities assumed at the date of the acquisition (in
millions):







|                          |  |  |  | May 18, 2004
|------------------------- |  |  |  | ------------
|Current
assets            |  |  |  |             
|Intangible
assets         |  |  |  |             
|Goodwill                  |  |  |  |             
|Other
long-term assets    |  |  |  |             
|Total assets
acquired     |  |  |  |             
|Current
liabilities       |  |  |  |             
|Long-term
liabilities     |  |  |  |             
|Total
liabilities assumed |  |  |  |             
|Net assets
acquired       |  |  |  |             
|Less cash
acquired        |  |  |  |             
|Net cash
paid             |  |  |  |             



Goodwill and long-term
liabilities were adjusted during the third quarter of 2005 for the resolution of certain income tax contingencies.




Unaudited pro forma consolidated
results of continuing operations for the three and nine months ended July 31, 2004, as though the acquisition of KRONE had taken place at the beginning
of each period, are as follows (in millions, except per share data):







|                                         |  |  |  | Three Months Ended July 31, 2004 |       | Nine Months Ended July 31, 2004
|---------------------------------------- |  |  |  | -------------------------------- | ----- | -------------------------------
|Net
sales                                |  |  |  | $                                | 242.2 |                                
|Income from
continuing operations (1)    |  |  |  | $                                | 1.4   |                                
|Net income per
share  basic and diluted |  |  |  | $                                | 0.01  |                                






|(1) |  | Includes restructuring and impairment charges of $0.6 million
and $13.9 million for the three and nine months ended July 31, 2004, respectively, for the ADC historical stand-alone business. Includes restructuring
charges of $0.1 million and $2.4 million for the three and nine months ended July 31, 2004 for the KRONEs historical stand-alone business. See
Note 13 for a discussion of the nature of these charges.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The unaudited pro forma results
of operations are for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisition occurred at the
beginning of the period presented or the results which may occur in the future.




7


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OpenCell




On May 6, 2005, we completed the
acquisition of OpenCell, Corp. (OpenCell), a manufacturer of digital fiber-fed Distributed Antenna Systems and shared multi-access radio
frequency network equipment, from Crown Castle International Corp. We acquired OpenCell for $7.1 million in cash.




The following table summarizes
the allocation of the purchase price to the fair values of the assets acquired and liabilities assumed at the date of the acquisition (in
millions):







|                          |  |  |  | May 6, 2005
|------------------------- |  |  |  | -----------
|Current
assets            |  |  |  | $          
|Intangible
assets         |  |  |  |            
|Other
long-term assets    |  |  |  |            
|Total assets
acquired     |  |  |  |            
|Current
liabilities       |  |  |  |            
|Total
liabilities assumed |  |  |  |            
|Net assets
acquired       |  |  |  |            
|Net cash
paid             |  |  |  | $          



Note 4  Discontinued Operations:




During fiscal 2004, we sold our
BroadAccess40 business, the business related to our Cuda cable modem termination system product line and related FastFlow Broadband Provisioning
Manager software, and the business related to our Singl.eView product line. We also entered into an agreement to sell the business related to our
Metrica service assurance software group and that transaction closed in the first quarter of our fiscal year 2005. In the third quarter of fiscal 2005,
we sold our ADC Systems Integration UK Limited business. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, these businesses were classified as discontinued operations in fiscal 2004 and the financial results are reported separately as
discontinued operations for all periods presented.




BroadAccess40




During the first quarter of
fiscal 2004, we entered into an agreement to sell our BroadAccess40 business, which was included in our Broadband Infrastructure and Access segment. We
classified this business as a discontinued operation beginning in the first quarter of fiscal 2004. This transaction closed on February 24, 2004. We
recorded a loss on the sale of the business of $3.6 million based on the value of the business assets and liabilities as of January 31, 2004.
Subsequent to January 31, 2004, adjustments of $3.0 million were made to increase the previous loss recorded.




The purchasers of the
BroadAccess40 business acquired all of the stock of our subsidiary that operated this business and assumed substantially all liabilities associated
with this business, with the exception of a $7.5 million note payable that was paid in full by us prior to the closing of the transaction. The
purchasers issued a promissory note to us for $3.8 million that was paid to us in full in May of 2005.




Cuda/FastFlow




During the third quarter of
fiscal 2004, we entered into an agreement to sell the business related to our Cuda cable modem termination system product line and related FastFlow
Broadband Provisioning Manager software, to BigBand Networks, Inc. (BigBand). This transaction closed on June 29, 2004. The business had
been included in our Broadband Infrastructure and Access segment. As consideration for this sale, we were issued a non-voting minority interest in
BigBand, which we accounted for under the cost method and has a nominal value. We also provided BigBand with a non-revolving credit facility of up to
$12.0 million with a term of three years. As of July 29, 2005, $7.0 million was drawn on the credit facility. We classified this business as a
discontinued operation beginning in the third quarter of fiscal 2004, and recorded a loss on sale of $2.6 million. In the fourth quarter, adjustments
of $2.3 million were made to increase the total loss to $4.9 million.




8


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Singl.eView




During the third quarter of
fiscal 2004, we entered into an agreement to sell the business related to our Singl.eView product line to Intec Telecom Systems PLC (Intec)
for a cash purchase price of $74.5 million, subject to purchase price adjustments. The transaction closed on August 27, 2004. This business had been
included in our Professional Services segment. We also agreed to provide Intec with a $6.0 million non-revolving credit facility with a term of 18
months. As of July 29, 2005, $4.0 million was drawn on the credit facility. We classified this business as a discontinued operation in the third
quarter of fiscal 2004. In the fourth quarter of fiscal 2004, we recognized a gain on sale of $61.7 million. In our fiscal 2005, we recognized an
income tax benefit of $3.7 million relating to resolution of certain income tax contingencies.




Metrica




During the fourth quarter of
fiscal 2004, we entered into an agreement to sell the business related to our Metrica service assurance software group to Vallent Corporation (formerly
known as WatchMark Corporation) (Vallent) for a cash purchase price of $35.0 million, subject to purchase price adjustments, and a $3.9
million equity interest in Vallent. The transaction closed on November 19, 2004. The equity interest constitutes less then a five percent ownership in
Vallent and is therefore accounted for under the cost method. This business had been included in our Professional Services segment. We classified this
business as a discontinued operation in the fourth quarter of fiscal 2004. In the first quarter of fiscal 2005, we recognized a gain on sale of $36.0
million.




In the second and third quarter
of fiscal 2005, we recorded adjustments to reduce the gain by $0.9 million and $1.0 million respectively, due to subsequent adjustments to the working
capital balances used to determine the purchase price. There may be additional future losses to record based on the resolution of certain contingencies
related to the sale. However, we are not able to estimate the amount of any such losses at this time.




ADC Systems Integration UK Limited




During the third quarter of
fiscal 2005, we sold our ADC Systems Integration UK Limited business for a nominal amount. As of July 29, 2005, a loss of $7.8 million has been
recorded in connection with the sale. This business had been included in our Professional Services segment. We classified this business as a
discontinued operation in the third quarter of fiscal 2005.




The financial results of our
BroadAccess40, Cuda/FastFlow, Singl.eView, Metrica and ADC Systems Integration UK Limited businesses included in discontinued operations are as follows
(in millions):







|                                                       |  |  |  | Three Months Ended |       | Nine Months Ended | 
|------------------------------------------------------ |  |  |  | ------------------ | ----- | ----------------- | 
|
|Net
sales                                              |  |  |  | $                  | 0.7   |                   | 
|(Loss) Income
from discontinued operations             |  |  |  | $                  | (2.8  | )                 | 
|(Loss) Gain on
sale of subsidiaries                    |  |  |  |                    | (7.4  | )                 | 
|(Loss) Income
from discontinued operations, net of tax |  |  |  | $                  | (10.2 | )                 | 



9


---



Note 5  Net Income (Loss) from Continuing Operations
Per Share:




The following table presents a
reconciliation of the numerators and denominators of basic and diluted income (loss) per share from continuing operations (in millions, except for per
share amounts):







|                                                     |  |  |  | Three Months Ended |       | Nine Months Ended | 
|---------------------------------------------------- |  |  |  | ------------------ | ----- | ----------------- | 
|
|Numerator:                                           |  |  |  |                    |       |                   | 
|Net income
from continuing operations  basic        |  |  |  | $                  | 34.1  |                   | 
|Interest
expense for convertible notes               |  |  |  |                    | 2.3   |                   | 
|Net income
from continuing operations  diluted      |  |  |  | $                  | 36.4  |                   | 
|                                                    
|Denominator:                                         |  |  |  |                    |       |                   | 
|Weighted
average common shares outstanding  basic   |  |  |  |                    | 116.0 |                   | 
|Convertible
bonds converted to common stock          |  |  |  |                    | 14.2  |                   | 
|Employee
options and other                           |  |  |  |                    | 1.2   |                   | 
|Weighted
average common shares outstanding  diluted |  |  |  |                    | 131.4 |                   | 
|Basic income
per share from continuing operations    |  |  |  | $                  | 0.29  |                   | 
|Diluted income
per share from continuing operations  |  |  |  | $                  | 0.28  |                   | 



Excluded from the dilutive
securities described above are employee stock options to acquire 3.4 million and 7.3 million shares for the three months ended July 29, 2005 and July
31, 2004, respectively, and 5.5 million and 6.6 million shares for the nine months ended July 29, 2005 and July 31, 2004, respectively. These
exclusions were made because the exercise prices of these options were greater than the average market price of the common stock for the period, which
results in these securities having an anti-dilutive effect.




Warrants to acquire 14.2 million
shares issued in connection with our convertible notes were excluded from the dilutive securities described above for the three and nine months ended
July 29, 2005 and July 31, 2004, because the exercise price of these warrants was greater than the average market price of the common
stock.




We are required to use the
if-converted method for computing diluted earnings per share with respect to the shares reserved for issuance upon conversion of the notes.
Under this method, we add back the interest expense on the convertible notes to net income and then divide this amount by outstanding shares, including
all 14.2 million shares that could be issued upon conversion of the notes. If this calculation results in further dilution of the earnings per share,
our diluted earnings per share will include all 14.2 million shares of common stock reserved for issuance upon conversion of our convertible notes. If
this calculation is anti-dilutive, the net-of-tax interest on the convertible notes is added back and the 14.2 million shares of common stock reserved
for issuance upon conversion of our convertible notes is included. Based upon these calculations, all shares reserved for issuance upon conversion of
our convertible notes were excluded for the three and nine months ended July 31, 2004 because of their anti-dilutive effect. However, these shares were
included for the three and nine months ended July 29, 2005.




Note 6  Inventories:




Inventories consist of the
following (in millions):







|                                              |  |  |  | July 29, 2005 |       | October 31, 2004
|--------------------------------------------- |  |  |  | ------------- | ----- | ----------------
|Purchased
materials and manufactured products |  |  |  | $             | 155.7 |                 
|Work-in-process                               |  |  |  |               | 10.8  |                 
|Less:
Inventory reserve                       |  |  |  |               | (36.5 | )               
|Total
inventories, net                        |  |  |  | $             | 130.0 |                 



10


---



Note 7  Property and Equipment:




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







|                                  |  |  |  | July 29, 2005 |        | October 31, 2004
|--------------------------------- |  |  |  | ------------- | ------ | ----------------
|Land and
buildings                |  |  |  | $             | 115.4  |                 
|Machinery and
equipment           |  |  |  |               | 390.3  |                 
|Furniture and
fixtures            |  |  |  |               | 32.7   |                 
|Less:
Accumulated depreciation    |  |  |  |               | (337.2 | )               
|Total                             |  |  |  |               | 201.2  |                 
|Construction in
progress          |  |  |  |               | 16.1   |                 
|Total
property and equipment, net |  |  |  | $             | 217.3  |                 



Note 8  Intangible Assets:




The following table represents
intangible assets by category and accumulated amortization as of July 29, 2005 (in millions):







|                      |  |  |  | Gross Carrying Amounts |       | Accumulated Amortization |  | Net |      | Estimated Life Range (in years)
|--------------------- |  |  |  | ---------------------- | ----- | ------------------------ |  | --- | ---- | -------------------------------
|Technology            |  |  |  | $                      | 28.9  |                          |  | $   | 6.0  |                                
|Trade
name/trademarks |  |  |  |                        | 25.3  |                          |  |     | 1.6  |                                
|Distributor
network   |  |  |  |                        | 10.1  |                          |  |     | 1.2  |                                
|Customer
list         |  |  |  |                        | 4.5   |                          |  |     | 2.1  |                                
|Patents               |  |  |  |                        | 22.9  |                          |  |     | 10.0 |                                
|Other                 |  |  |  |                        | 23.0  |                          |  |     | 3.9  |                                
|                      |  |  |  | $                      | 114.7 |                          |  | $   | 24.8 |                                



Amortization expense was $3.7
million and $0.7 million for the three months ended July 29, 2005 and July 31, 2004, respectively, and $10.6 million and $2.0 million for the nine
months ended July 29, 2005 and July 31, 2004, respectively. The estimated amortization expense for identified intangible assets is as follows for the
periods indicated (in millions):







|Remaining
2005 |  |  |  | $ | 4.1  | 
|-------------- |  |  |  | - | ---- | 
|2006           |  |  |  |   | 14.6 | 
|2007           |  |  |  |   | 12.5 | 
|2008           |  |  |  |   | 12.5 | 
|2009           |  |  |  |   | 10.2 | 
|2010           |  |  |  |   | 6.8  | 
|Thereafter     |  |  |  |   | 29.2 | 
|Total          |  |  |  | $ | 89.9 | 



Note 9  Income Taxes:




A deferred tax asset represents
future tax benefits to be received when certain expenses and losses previously recognized in U.S. income statements become deductible under applicable
income tax laws. The realization of a deferred tax asset is dependent on future taxable income against which these deductions can be applied. SFAS No.
109, Accounting for Income Taxes, requires that a valuation allowance be established when it is more likely than not that all or a portion
of deferred tax assets will not be realized. As a result of the cumulative losses we incurred in recent years, we previously concluded that a nearly
full valuation allowance should be recorded. We expect to maintain a nearly full valuation allowance on our deferred tax assets until we can sustain a
level of profitability that demonstrates our ability to utilize these assets. We will not record significant income tax expense or benefits for pre-tax
income (loss) until either our deferred tax assets are fully utilized to reduce future income tax liabilities or the value of our deferred tax assets
are restored on the balance sheet. Substantially, all of our income tax provision for the three and nine months ended July 29, 2005 is due to foreign
income taxes.




11


---



As of July 29, 2005, we had
$1,059.9 million of net deferred tax assets that have a nearly full valuation allowance and therefore such net deferred tax assets are reflected on the
Condensed Consolidated Balance Sheet in Other Assets at an insignificant amount. Most of our deferred tax assets are related to U.S. income taxes and
are not expected to expire until after fiscal 2021 with the exception of $225.6 million relating to capital loss carryovers which can only be utilized
against realized capital gains and which expire in fiscal 2009.




Note 10  Comprehensive Income
(Loss):




Comprehensive income (loss) has
no impact on our net income (loss) but is reflected in our balance sheet through adjustments to shareowners investment. The components of
comprehensive income (loss) are as follows (in millions):







|                                                                                                       |  |  |  | Three Months Ended |      | Nine Months Ended | 
|------------------------------------------------------------------------------------------------------ |  |  |  | ------------------ | ---- | ----------------- | 
|
|Net income
(loss)                                                                                      |  |  |  | $                  | 23.9 |                   | 
|Change in
cumulative translation                                                                       |  |  |  |                    |      |                   | 
|Adjustments                                                                                            |  |  |  |                    | (4.0 | )                 | 
|Reclassification adjustment for realized gains (losses) on securities classified as available for sale |  |  |  |                    | 0.1  |                   | 
|Unrealized
loss from securities classified as available for sale                                       |  |  |  |                    |     |                   | 
|Total
comprehensive income (loss)                                                                      |  |  |  | $                  | 20.0 |                   | 



Note 11  Pension Benefits:




With our acquisition of KRONE in
fiscal 2004, we assumed certain pension obligations of KRONE related to its German workforce. Prior to the KRONE acquisition, we did not have any
defined benefit plans. The KRONE pension plan is an unfunded general obligation of one of our German subsidiaries (which is a common arrangement for
German pension plans). The plan was closed to employees hired after 1994 and thus covers only current retirees and those hired prior to 1995. Pension
payments will be made to eligible individuals upon reaching eligible retirement age, and the cash payments are expected to approximately equal the net
periodic benefit cost.




Components of net periodic
benefit cost are as follows (in millions):







|                          |  |  |  | Three Months Ended |     | Nine Months Ended | 
|------------------------- |  |  |  | ------------------ | --- | ----------------- | 
|
|Service
cost              |  |  |  | $                  |    |                   | 
|Interest
cost             |  |  |  |                    | 0.8 |                   | 
|Net periodic
benefit cost |  |  |  | $                  | 0.8 |                   | 



Note 12  Segment and Geographic
Information:




Segment Information




We have two reportable segments:
the Broadband Infrastructure and Access segment and the Professional Services segment.




Broadband Infrastructure and
Access products consist of:


| |  | Connectivity systems and components that provide the
infrastructure to wireline, wireless, cable, broadcast and enterprise networks to connect high-speed Internet, data, video and voice services to the
network over copper, coaxial and fiber-optic cables; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Access systems used in the last mile/kilometer of wireline and
wireless networks to deliver high-speed Internet, data and voice services.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------



12


---



Professional Services (previously
known as Integrated Solutions) provide integration services for broadband, multiservice communications over wireline, wireless, cable and enterprise
networks. Professional services are used to plan, deploy and maintain communications networks that deliver high-speed Internet, data, video and voice
services.




Intersegment sales of $12.0
million and $35.5 million and operating income of $7.6 million and $23.3 million are eliminated from Professional Services for the three and nine
months ended July 29, 2005, respectively. These intersegment sales primarily represent products of Broadband Infrastructure and Access sold by the
Professional Services segment. In previous years, eliminations were included in our Broadband Infrastructure and Access segment. The prior year
presentation has been reclassified to conform to the current year presentation. Additionally, allocations of corporate costs are completed at a
regional level instead of at the operating segment level. As such, while our senior management does not view corporate cost allocations at the
operating segment level, we believe allocating the costs to the operating segments on the basis of net sales is a more accurate representation of
operating segment performance.




The following table sets forth
net sales information for each of our functional operating segments described above (in millions):







|                                        |  |  |  | Three Months Ended |       | Nine Months Ended | 
|--------------------------------------- |  |  |  | ------------------ | ----- | ----------------- | 
|
|Infrastructure
Products (Connectivity)  |  |  |  | $                  | 217.3 |                   | 
|Access
Products (Wireline and Wireless) |  |  |  |                    | 42.1  |                   | 
|Broadband
Infrastructure and Access     |  |  |  |                    | 259.4 |                   | 
|Professional Services                   |  |  |  |                    | 55.2  |                   | 
|Total net
sales                         |  |  |  | $                  | 314.6 |                   | 



13


---



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







|                                                             |  |  |  | Broadband Infrastructure and Access |       | Professional Services |  | Unallocated Items |       | Consolidated
|------------------------------------------------------------ |  |  |  | ----------------------------------- | ----- | --------------------- |  | ----------------- | ----- | ------------
|Three
Months Ended July 29, 2005                             |  |  |  |                                     |       |                       |  |                   |       |             
|Net
sales:                                                   |  |  |  |                                     |       |                       |  |                   |       |             
|Product                                                      |  |  |  | $                                   | 259.4 |                       |  | $                 | 13.0  |             
|Service                                                      |  |  |  |                                     |      |                       |  |                   | 42.2  |             
|Total net
sales                                              |  |  |  |                                     | 259.4 |                       |  |                   | 55.2  |             
|Restructuring and impairments                                |  |  |  |                                     | 0.8   |                       |  |                   | 0.2   |             
|Operating
income (loss)                                      |  |  |  |                                     | 37.1  |                       |  |                   | (4.2  | )           
|Other income
(loss), net                                     |  |  |  |                                     | 1.2   |                       |  |                   | (0.7  | )           
|Income
(loss) from continuing operations before income taxes |  |  |  |                                     | 38.3  |                       |  |                   | (4.9  | )           
|Assets                                                       |  |  |  |                                     | 729.5 |                       |  |                   | 106.8 |             
|                                                            
|Three
Months Ended July 31, 2004                             |  |  |  |                                     |       |                       |  |                   |       |             
|Net
sales:                                                   |  |  |  |                                     |       |                       |  |                   |       |             
|Product                                                      |  |  |  | $                                   | 183.8 |                       |  | $                 | 19.0  |             
|Service                                                      |  |  |  |                                     |      |                       |  |                   | 22.1  |             
|Total net
sales                                              |  |  |  |                                     | 183.8 |                       |  |                   | 41.1  |             
|Restructuring and impairments                                |  |  |  |                                     | 0.5   |                       |  |                   | 0.1   |             
|Operating
income (loss)                                      |  |  |  |                                     | 13.8  |                       |  |                   | (9.9  | )           
|Other income
(loss), net                                     |  |  |  |                                     | 2.7   |                       |  |                   | (0.2  | )           
|Income
(loss) from continuing operations before income taxes |  |  |  |                                     | 16.5  |                       |  |                   | (10.1 | )           
|Assets                                                       |  |  |  |                                     | 306.7 |                       |  |                   | 147.0 |             






|                                                             |  |  |  | Broadband Infrastructure and Access |       | Professional Services |  | Unallocated Items |       | Consolidated
|------------------------------------------------------------ |  |  |  | ----------------------------------- | ----- | --------------------- |  | ----------------- | ----- | ------------
|Nine
Months Ended July 29, 2005                              |  |  |  |                                     |       |                       |  |                   |       |             
|Net
sales:                                                   |  |  |  |                                     |       |                       |  |                   |       |             
|Product                                                      |  |  |  | $                                   | 694.3 |                       |  | $                 | 41.8  |             
|Service                                                      |  |  |  |                                     |      |                       |  |                   | 131.5 |             
|Total net
sales                                              |  |  |  |                                     | 694.3 |                       |  |                   | 173.3 |             
|Restructuring and impairments                                |  |  |  |                                     | 5.8   |                       |  |                   | 1.6   |             
|Operating
income (loss)                                      |  |  |  |                                     | 77.3  |                       |  |                   | (9.7  | )           
|Other
income, net                                            |  |  |  |                                     | 6.3   |                       |  |                   | (0.4  | )           
|Income
(loss) from continuing operations before income taxes |  |  |  |                                     | 83.6  |                       |  |                   | (10.1 | )           
|Assets                                                       |  |  |  |                                     | 729.5 |                       |  |                   | 106.8 |             
|                                                            
|Nine
Months Ended July 31, 2004                              |  |  |  |                                     |       |                       |  |                   |       |             
|Net
sales:                                                   |  |  |  |                                     |       |                       |  |                   |       |             
|Product                                                      |  |  |  | $                                   | 407.2 |                       |  | $                 | 34.9  |             
|Service                                                      |  |  |  |                                     |      |                       |  |                   | 67.6  |             
|Total net
sales                                              |  |  |  |                                     | 407.2 |                       |  |                   | 102.5 |             
|Restructuring and impairments                                |  |  |  |                                     | 11.0  |                       |  |                   | 2.9   |             
|Operating
income (loss)                                      |  |  |  |                                     | 34.3  |                       |  |                   | (24.5 | )           
|Other
income, net                                            |  |  |  |                                     | 3.7   |                       |  |                   | 0.4   |             
|Income
(loss) from continuing operations before income taxes |  |  |  |                                     | 38.0  |                       |  |                   | (24.1 | )           
|Assets                                                       |  |  |  |                                     | 306.7 |                       |  |                   | 147.0 |             



14


---



Geographic Information




The following table represents
net sales by significant geographical territories (in millions):







|                                                                                   |  |  |  | Three Months Ended |       | Nine Months Ended | 
|---------------------------------------------------------------------------------- |  |  |  | ------------------ | ----- | ----------------- | 
|
|Inside the
United States                                                           |  |  |  | $                  | 179.5 |                   | 
|Outside the
United States:                                                         |  |  |  |                    |       |                   | 
|Asia Pacific
(China, Hong Kong, Korea, Australia, India, Japan and Southeast Asia) |  |  |  |                    | 28.0  |                   | 
|EMEA (Europe
(excluding Germany), Middle East and Africa)                          |  |  |  |                    | 41.7  |                   | 
|Germany                                                                            |  |  |  |                    | 41.5  |                   | 
|Americas
(Canada, Central and South America)                                       |  |  |  |                    | 23.9  |                   | 
|Total                                                                              |  |  |  | $                  | 314.6 |                   | 



Note 13  Restructuring and Impairment
Charges:




During the three months ended
July 29, 2005 and July 31, 2004, we continued our plan to improve operating performance by restructuring and streamlining our operations. As a result,
we incurred restructuring charges associated with workforce reductions as well as the consolidation of excess facilities. The restructuring charges
resulting from our actions by category of expenditures, adjusted to exclude those activities specifically related to discontinued operations, are as
follows for the three and nine months ended July 29, 2005 and July 31, 2004 (in millions):







|                                               |  |  |  | Three Months Ended |      | Nine Months Ended | 
|---------------------------------------------- |  |  |  | ------------------ | ---- | ----------------- | 
|
|Employee
severance costs                       |  |  |  | $                  | (0.3 | )                 | 
|Facilities
consolidation and lease termination |  |  |  |                    | 1.3  |                   | 
|Fixed asset
impairments                        |  |  |  |                    | 0.0  |                   | 
|Total
restructuring and impairment charges     |  |  |  | $                  | 1.0  |                   | 



Restructuring
Charges: Restructuring charges relate principally to employee severance costs and facility consolidation costs resulting from the closure of
facilities and other workforce reductions attributable to our efforts to reduce costs. During the three and nine months ended July 29, 2005, 27 and 102
employees were impacted by reductions in force, principally in our Broadband Infrastructure and Access segment. During the three and nine months ended
July 31, 2004, 34 and 72 employees were impacted by reductions in force, principally in corporate functions.




Facilities consolidation and
lease termination costs represent lease termination and other costs associated with our decision to consolidate and close duplicative or excess
manufacturing and office facilities. For the three and nine months ended July 29, 2005, we incurred charges of $4.0 million and $6.3 million,
respectively. Charges to discontinued operations included in these charges for the three and nine months ended July 29, 2005, totaled $2.7 million and
$2.7 million, respectively, primarily due to additional lease obligations associated with a property subject to restructuring. During the three and
nine months ended July 31, 2004, we incurred charges of $0.2 million and $10.0 million, respectively, due to lower sublease income as a result of the
continued softening of the real estate markets.




15


---



The following table provides
detail on the activity and our remaining restructuring accrual balance by category as of July 29, 2005 (in millions):







|Type of Charge           |  |  |  | Accrual October 31, 2004 |      | Continuing Operations Net Additions |  | Discontinued Operations Net Additions |     | Cash Charges |  | Accrual July 29,2005
|------------------------ |  |  |  | ------------------------ | ---- | ----------------------------------- |  | ------------------------------------- | --- | ------------ |  | --------------------
|Employee
severance costs |  |  |  | $                        | 9.6  |                                     |  | $                                     | 3.7 |              |  | $                   
|Facilities
consolidation |  |  |  |                          | 28.8 |                                     |  |                                       | 3.6 |              |  |                     
|Total                    |  |  |  | $                        | 38.4 |                                     |  | $                                     | 7.3 |              |  | $                   



We expect that substantially all
of the remaining $2.3 million accrual relating to employee severance costs as of July 29, 2005, will be paid from unrestricted cash by the end of the
third quarter of fiscal 2006. Of the $26.8 million to be paid for the consolidation of facilities, we expect that approximately $10.9 million will be
paid from unrestricted cash through July 28, 2006, and that the balance will be paid from unrestricted cash over the respective lease terms of the
facilities through 2015. Based on our intention to continue to consolidate and close duplicative or excess manufacturing operations in order to 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 operating results.




During the nine months ended July
29, 2005, we sold three properties, previously classified as held for sale, for proceeds of $8.1 million and a net gain of $1.5
million.




Note 14  Other Income, Net:




Other income, net consists of the
following (in millions):







|                                |  |  |  | Three Months Ended |      | Nine Months Ended | 
|------------------------------- |  |  |  | ------------------ | ---- | ----------------- | 
|
|Interest
income                 |  |  |  | $                  | 5.8  |                   | 
|Interest
expense                |  |  |  |                    | (3.0 | )                 | 
|Foreign
exchange income (loss)  |  |  |  |                    |     |                   | 
|Gain on sale
of note receivable |  |  |  |                    |     |                   | 
|Gain on sale
of product lines   |  |  |  |                    |     |                   | 
|Gain on sale
of investments     |  |  |  |                    |     |                   | 
|Gain on sale
of fixed assets    |  |  |  |                    | 0.1  |                   | 
|Other                           |  |  |  |                    | (0.2 | )                 | 
|Total Other
Income, Net         |  |  |  | $                  | 2.7  |                   | 



During the three months ended
January 28, 2005, fully reserved notes receivable of $15.8 million were sold resulting in a gain on sale of $9.0 million.




Note 15  Commitments and
Contingencies:




Legal Contingencies: On
May 19, 2003, we were served with a lawsuit that was filed in the United States District Court for the District of Minnesota. The complaint named ADC
and several of our current and former officers, employees and directors as defendants. After this lawsuit was served, we were served with two
substantially similar lawsuits. All three of these lawsuits were consolidated into a single lawsuit captioned In Re ADC Telecommunications, Inc.
ERISA Litigation. This lawsuit has been brought by individuals who seek to represent a class of participants in our Retirement Savings Plan who
purchased our common stock as one of the investment alternatives under the Retirement Savings Plan from February 2000 to present. The lawsuit alleges a
breach of fiduciary duties under the Employee Retirement Income Security Act. On February 2, 2004, we filed a motion to dismiss this lawsuit, which was
denied by the court. This case is now in the discovery phase. A hearing has been held regarding whether the class should be certified. A decision from
that hearing is currently pending.




On June 6, 2005, the Eighth
Circuit Court of Appeals upheld a decision of the United States District Court for the District of Minnesota to dismiss another class action suit
brought against us. This lawsuit was brought by Wanda Kinermon in March 2003. The complaint named ADC, William J. Cadogan, our former Chairman and
Chief




16


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Executive Officer, and Robert
E. Switz, our current Chief Executive Officer and former Chief Financial Officer, as defendants. After this lawsuit was served, we were named as a
defendant in 11 other substantially similar lawsuits. These shareowner lawsuits, including the suit brought by Ms. Kinermon, were consolidated into a
single lawsuit captioned In Re ADC Telecommunications, Inc. Securities Litigation. The lawsuit purported to bring suit on behalf of a class of
purchasers of our publicly traded securities from August 17, 2000 to March 28, 2001. The complaint alleged that we violated the securities laws by
making false and misleading statements about our financial performance and business prospects during this period. It is unclear at this time whether
Plaintiffs will attempt to appeal the decision of the Eighth Circuit Court of Appeals.




We are a party to various other
lawsuits, proceedings and claims arising in the ordinary course of business or otherwise. As of July 29, 2005, we had recorded $6.5 million in loss
reserves in the event of adverse outcomes in these matters. At this time, we believe the ultimate resolution of these lawsuits, proceedings and claims
will not have a material adverse impact on our business, results of operations or financial condition. However, litigation by its nature is uncertain,
and we cannot predict the ultimate outcome of these matters, or any potential liability associated with the same, with any certainty.




Income Tax Contingencies:
Our effective tax rate is impacted by reserve provisions and changes to reserves, which we consider appropriate. We establish reserves when, despite
our belief that our tax returns reflect the proper treatment of all matters, we believe that the treatment of certain tax matters is likely to be
challenged and that we may not ultimately be successful.




Significant judgment is required
to evaluate and adjust the reserves in light of changing facts and circumstances, such as the progress of a tax audit. Further, a number of years may
lapse before a particular matter for which we have established a reserve is audited and finally resolved. While it is difficult to predict the final
outcome or the timing of resolution of any particular tax matter, we believe that our reserves reflect the probable outcome of known tax
contingencies.




Other Contingencies: As a
result of the divestitures discussed in Note 4, we may incur charges related to obligations retained based on the sale agreement.




Change of Control: Our
Board of Directors has approved the extension of certain employee benefits, including salary continuation to key employees, in the event of a change of
control of ADC.




Note 16  FONS Acquisition:




On July 21, 2005, we announced an
agreement to acquire 100% of the outstanding shares of Fiber Optic Network Solutions Corp. (FONS). FONS is a leading manufacturer of
high-performance passive optical components and fiber optical cable packaging, distribution and connectivity solutions. The purchase price was
approximately $161.3 million, subject to purchase price adjustments. In addition, the parties have established a bonus pool of approximately $11
million to provide bonus compensation to certain former employees of FONS that recognizes their historical contributions to FONS and to provide an
incentive to these former FONS employees to remain with us during the immediate post-closing period. The acquisition is designed to further enhance and
add scale to our existing line of fiber-to-the-x (i.e., the deployment of fiber based networks closer to the ultimate consumer which is sometimes
referred to as FTTX) solutions in a fast growing market and to support our long-term goal of being the leading global provider of global
network infrastructure solutions. This transaction closed on August 26, 2005.




17


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




Overview




We are a leading global provider
of communications network infrastructure solutions and services. Our products and services connect communications networks over copper, fiber, coaxial
and wireless media and enable the use of high-speed Internet, data, video and voice services by residences, businesses and mobile communications
subscribers. Our products include fiber optic, copper and coaxial based frames, cabinets, cables, connectors, cards and other physical components
essential to enable the delivery of communications for wireline, wireless, cable, broadcast and enterprise networks. Our products also include network
access devices such as high-bit-rate digital subscriber line and wireless coverage solutions. In addition, we provide professional services relating to
the design, equipping and building of networks, which compliments our hardware business by planning, deploying and maintaining communications
networks.




Our customers include local and
long-distance telephone companies, private enterprise networks, cable television operators, wireless service providers, new competitive service
providers, broadcasters, governments, system integrators and communications equipment manufacturers and distributors. We offer broadband connectivity
systems, enterprise systems, wireless transport and coverage optimization systems, business access systems and professional services to our customers
through the following two reportable business segments:


| |  | Broadband Infrastructure and Access; and
|- |  | ----------------------------------------

| |  | Professional Services (previously known as Integrated
Solutions).
|- |  | -----------------------------------------------------------------



Our Broadband Infrastructure and
Access business provides network infrastructure products for wireline, wireless, cable, broadcast and enterprise network applications for the
communications industry. These products consist of:


| |  | connectivity systems and components that provide the
infrastructure to networks to connect Internet, data, video and voice services over copper, coaxial and fiber-optic cables; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | access systems used in the last mile/kilometer of wireline and
wireless networks to deliver high-speed Internet, data and voice services.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------



Our Professional Services
business provides integration services for broadband, multiservice communications over wireline, wireless, cable and enterprise networks. Professional
services are used to plan, deploy and maintain communications networks that deliver Internet, data, video and voice services.




Marketplace Conditions




Our operating results for the
three and nine months ended July 29, 2005 reflected significant growth in net sales when compared with the same period in prior years, even when
excluding sales of KRONE which we acquired in the third quarter of fiscal 2004.




Our net sales and income for the
three months ended July 29, 2005 showed year over year growth across the majority of our product and service offerings, although that growth was more
modest compared to the year over year growth we experienced during the second quarter of the current fiscal year. While we anticipate a continuation of
year over year sales growth, subject to telecom industry spending cycles, it appears that many of our customers may have accelerated their annual
capital spending in the first calendar-half of 2005, based on the strong growth of our sales and earnings in the first nine months of our fiscal 2005.
In addition, our expansion into new growth markets of fiber-to-the-X (i.e., the deployment of fiber based networks closer to the ultimate consumer
which is sometimes referred to as FTTX), wireless and enterprise may have changed the seasonality of our business to be different than our
historical central-office-based business. For example, while our Digivance wireless sales have grown 138% in the first nine months of our fiscal 2005
compared to the same period in fiscal 2004, these sales have fluctuated from one quarter to the next in the past and are expected to continue to
fluctuate from one quarter to the next due to the timing of new products and customer deployments. Consequently, historical seasonal patterns of
sequential growth of sales in which our fourth fiscal quarter sales are typically higher than in the third fiscal




18


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quarter may not apply in fiscal 2005 and beyond. We do, however, still expect
  to post year over year revenue and income growth during our fourth quarter.
  A more detailed description of the risks to our business related to seasonality,
  along with other risk factors associated with our business, can be found in
  Exhibit 99 of this Form 10-Q.




We believe that there is a
general trend in our industry toward modest overall spending increases from the historical low levels experienced from fiscal 2001 through fiscal 2003.
However, it is important to recognize that overall spending on communications equipment and services remains at significantly lower levels than existed
prior to fiscal 2001 and that customers appear to be selective about areas where they are willing to increase spending. Specifically, we believe that
spending increases by our customers are likely to be more pronounced in FTTX initiatives as well as in the wireless and enterprise areas. We undertook
our recently announced acquisition of FONS to help expand our position as a leader in the FTTX space.




We also believe that as capital
spending budgets remain constrained, any increases in specific areas may cause service providers to decrease spending in other areas. For instance, we
believe initiatives to spend on FTTX projects may be causing decreases in spending on other wireline initiatives. Ongoing consolidation among
communications service providers may cause such companies to defer spending while they focus on integrating combined businesses. In addition, our
industry continues to experience very intense competition and increased pricing pressure from our customers. Subject to telecom industry spending
cycles, we currently anticipate the overall market for spending on communication equipment and services to grow year-over-year at least slowly in the
near term. Certain developments, including increased competition among telephone, wireless and cable providers, which, as a result, is causing these
providers to upgrade their networks to offer voice, video and data services to attract and retain customers and the rate at which they respond to each
others competitive threats, may impact the rate of future sales growth, if any, as well as place pressure on gross profit
margins.




While we are cautious about our
ability to be successful in achieving continued revenue growth, we do believe several factors may provide us with the opportunity to increase our sales
faster than growth in the overall market in the near term. We believe such sales growth could be achieved through:


| |  | New product offerings, such as our OmniReach FTTX
solutions being deployed by several communications service providers and the growing acceptance of our Digivance® wireless coverage solution and
our TrueNet® and CopperTen enterprise solutions;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Opportunities to cross-sell products among ADCs
traditional customer base and the traditional customer base of KRONE following our acquisition of Krone in May 2004; and
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Increasing our market share in certain areas as we have recently
done with respect to some of our product lines.
|- |  | ----------------------------------------------------------------------------------------------------------------



We continue to be dependent on
telecommunications service providers for a majority of our sales, although this dependence has recently declined because of our KRONE acquisition. The
four major U.S. telephone companies (Verizon, BellSouth, Qwest and SBC) accounted for 26.2% and 30.6% of our sales for the nine months ended July 29,
2005 and July 31, 2004, respectively. In addition, our top ten customers accounted for approximately 43.3% and 47.4% of our net sales for the nine
months ended July 29, 2005 and July 31, 2004, respectively. The decline in these customer concentration levels from 2004 to 2005 is largely due to the
KRONE acquisition, which gave us a more diversified customer base throughout the world. However, the increased diversification may be offset by mergers
among our customers or acquisitions we undertake, such as our recent acquisition of FONS. The long-term impact of other customer mergers on our
business is difficult to predict. In addition, in the product areas where we believe the potential for sales growth is most pronounced (e.g. FTTX
initiatives and wireless products), our sales remain highly concentrated with the large U.S. telephone and wireless companies.




We are continuing to focus on
ways to conduct our operations more efficiently and to reduce costs. During the downturn in communications equipment spending from fiscal 2001 through
fiscal 2003, we took significant cost-reduction measures. We believe most of our restructuring activity is completed, but we will continue to pursue
expense reductions. For example, the integration of the KRONE acquisition has presented opportunities to reduce costs through the consolidation of
duplicative facilities, the movement of operations into lower cost locations as well as the elimination of duplicative processes and personnel
functions. Following the closing of our acquisition of FONS, we will seek additional opportunities to reduce costs and gain economies of scale,
although we note that




19


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the operations of FONS are
significantly smaller than were those of KRONE when we completed that acquisition. Accordingly, we anticipate incurring additional restructuring
charges in future periods.




We intend to continue to explore
additional product line or business acquisitions that are complimentary to our communications infrastructure business. We believe our acquisition of
FONS will enhance our FTTX and other connectivity solution offerings. In addition, we recently completed the acquisition of OpenCell, which we believe
will enhance our Digivance wireless coverage solution offering. We expect to fund other potential acquisitions with existing cash resources, the
issuance of shares of common or preferred stock, the issuance of debt or equity-linked securities or through some combination of these alternatives. In
addition, we will continue to monitor all of our businesses and may determine it appropriate to sell or otherwise dispose of certain operations. For
example, on May 24, 2005, we completed the sale of our professional services operations in the United Kingdom because it no longer fit into our
strategy.




Results of Operations




Net Sales




Our net sales for the three and
nine months ended July 29, 2005 reflected significant growth when compared with the same period in prior years, even when excluding sales of KRONE
which we acquired in the third quarter of fiscal 2004.




The following table sets forth
our net sales for the three and nine months ended July 29, 2005 and July 31, 2004 for each of our segments described above (in
millions):







|                                    |  |  |  | Three Months Ended |      
|----------------------------------- |  |  |  | ------------------ | -----
|
|
|Broadband
Infrastructure and Access |  |  |  | $                  | 259.4
|Professional
Services:              |  |  |  |                    |      
|Product                             |  |  |  |                    | 13.0 
|Service                             |  |  |  |                    | 42.2 
|Total
Professional Services         |  |  |  |                    | 55.2 
|Total                               |  |  |  | $                  | 314.6






|                                    |  |  |  | Nine Months Ended |      
|----------------------------------- |  |  |  | ----------------- | -----
|
|
|Broadband
Infrastructure and Access |  |  |  | $                 | 694.3
|Professional
Services:              |  |  |  |                   |      
|Product                             |  |  |  |                   | 41.8 
|Service                             |  |  |  |                   | 131.5
|Total
Professional Services         |  |  |  |                   | 173.3
|Total                               |  |  |  | $                 | 867.6



Net sales were $314.6 million and
$867.6 million for the three and nine months ended July 29, 2005, respectively, and increased 39.9% (or 34.9% exclusive of the KRONE acquisition) and
70.2% (or 27.2% exclusive of the KRONE acquisition), respectively, over the comparable 2004 periods. The KRONE acquisition accounted for 42.0% and
67.1% of the net sales increase over the comparable three and nine month periods in 2004. Excluding the KRONE acquisition, our sales growth for the
three and nine months ended July 31, 2004, was driven by strong broad-based growth among our comprehensive communication infrastructure solutions.
International sales comprised 42.9% and 45.1% of our net sales for the three months and 45.4% and 35.7% of our net sales for the nine months ended July
29, 2005 and July 31, 2004, respectively. The increase in international sales for the nine months ended July 29, 2005, is due primarily to our
acquisition of KRONE, which has a greater mix of international sales.




20


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Net sales of Broadband
Infrastructure and Access products increased 41.8% and 71.2%, respectively for the three and nine months ended July 29, 2005 over the comparable 2004
periods. Our Broadband Infrastructure and Access segment includes infrastructure (connectivity) and access (wireless and wireline) products. The KRONE
acquisition accounted for 45.2% and 71.4% of the net sales increase of Broadband Infrastructure and Access products over the comparable three and nine
month periods in 2004.




Net sales of connectivity
products increased 45.2% and 99.1% for the three and nine months ended July 29, 2005, respectively, over the comparable 2004 periods. The KRONE
acquisition accounted for 51.2% and 69.9% of the net connectivity increase over the comparable three and nine months periods in 2004. Sales of our
fiber connectivity products represented 37.3% and 24.4%, respectively of the net connectivity increase over the comparable three and nine months
periods in 2004. This fiber sales increase was boosted by increased sales of our OmniReach FTTX products, which had minimal sales in the comparable
2004 periods.




Net sales of wireless products
were $23.2 million and $48.2 million for the three and nine months ended July 29, 2005, respectively, and increased 116.8% and 56.5%, respectively,
over the comparable 2004 periods. The increase in wireless product line sales was a result of improved demand for our Digivance product line due to the
timing of product development and production for our new dual band product as well as an improved supply chain for certain Digivance components. Sales
of our Digivance product lines are continuing to grow from sales to Verizon and Nextel for deployments in large North American cities. However, sales
of Digivance have fluctuated from one quarter to the next in the past and are expected to continue to fluctuate from one quarter to the next due to the
timing of new products and customer deployments.




Net sales of wireline products
decreased 14.5% and 32.1% for the three and nine months ended July 29, 2005, over the comparable 2004 periods. The decrease in wireline product sales
was caused primarily by a general industry-wide decrease in the market demand for high-bit-rate digital subscriber line products as carriers undertake
product substitution by delivering fiber and internet protocol services closer to end user premises.




Net sales of Professional
Services products increased by 34.3% and 69.0% for the three and nine months ended July 29, 2005 over the comparable 2004 periods. The KRONE
acquisition represents 22.0% and 48.1% of the increase in net sales of Professional Services products over the comparable three and nine months periods
in 2004. In addition, market share gains with several key customers contributed to the increase in sales.




Gross Profit




During the three and nine months
ended July 29, 2005, our gross profit percentages were 36.8% (or 40.0% exclusive of the KRONE acquisition) and 36.3% (or 39.2% exclusive of the KRONE
acquisition), respectively, compared to 38.2% and 39.7%, respectively, for the comparable 2004 periods. The decrease in the gross profit percentage
primarily was due to increases in sales of lower margin products caused by the KRONE acquisition and increased sales from FTTX products and
Professional Services as well as from the decrease in sales of our wireline products which have relatively high margins. The mix of products we sell in
any one quarter is variable and is difficult to predict accurately.




Operating Expenses




Total operating expenses for the
three and nine months ended July 29, 2005, were $82.9 million and $247.2 million, respectively, representing 26.4% and 28.5% of net sales,
respectively. Total operating expenses for the comparable 2004 periods, were $81.9 million and $192.3 million, respectively, which represents 36.4% and
37.7% of net sales, respectively. KRONE operating expenses were $22.1 million and $72.9 million for the three and nine months ended July 29, 2005,
respectively. Excluding the effect of the KRONE operating expenses, operating expenses decreased 0.3% and increased 1.7%, respectively, compared to
comparable 2004 periods, due mainly to the change in selling and administration expenses discussed below.




Research and development expenses
were $18.4 million and $51.8 million for the three and nine months ended July 29, 2005, respectively, or an increase of 11.5% and 19.9% over comparable
2004 periods. The increases were almost entirely attributable to spending on projects related to KRONE based products because we did not close on our
acquisition of KRONE until the third quarter of our fiscal 2004. We believe that, given the rapidly changing technological and competitive environment
in the communications equipment industry, continued commitment to




21


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product development efforts
will be required for us to remain competitive. Accordingly, we intend to continue to allocate substantial resources, as a percentage of our net sales,
to product development in each of our segments. Most of our research and development will be directed towards projects that we believe directly advance
our strategic aims and have a higher probability to return our investment.




Selling and administration
expenses were $63.5 million and $188.0 million for the three and nine months ended July 29, 2005, or a decrease of 2.0% (or a decrease of 3.7%
exclusive of the KRONE acquisition) and an increase of 39.1% (or 8.2% exclusive of the KRONE acquisition) over comparable 2004 periods. The increase in
selling and administrative expenses is primarily due to incentives that have been partially offset by a decrease in the number of facilities. In
addition, in fiscal 2004, there were $6.0 million of one-time benefits primarily due to bad debt recoveries.




In fiscal 2005, we expect to
incur added administrative expense, including external fees of $3.1 million through the third quarter of 2005, and we expect to spend another $1.3
million in our final quarter of fiscal year 2005, associated with the requirements to comply with Section 404 of the Sarbanes-Oxley Act of 2002.
Compliance with Section 404 requires us to conduct a thorough evaluation of our internal control over financial reporting, and we are and will be
working with independent advisors in this process.




Restructuring Charges:




Restructuring charges relate
principally to employee severance costs and facility consolidation costs resulting from the closure of facilities and other workforce reductions
attributable to our efforts to reduce costs. During the three and nine months ended July 29, 2005, 27 and 102 employees were impacted by reductions in
force, principally in our Broadband Infrastructure and Access segment. During the three and nine months ended July 31, 2004, 34 and 72 employees were
impacted by reductions in force, principally in corporate functions.




Other Income, Net




Other income, net consists of the
following (in millions):







|                                    |  |  |  | Three Months Ended |      | Nine Months Ended | 
|----------------------------------- |  |  |  | ------------------ | ---- | ----------------- | 
|
|Interest
income                     |  |  |  | $                  | 5.8  |                   | 
|Interest
expense                    |  |  |  |                    | (3.0 | )                 | 
|Foreign
exchange income (loss)      |  |  |  |                    |     |                   | 
|Gain on sale
of note receivable     |  |  |  |                    |     |                   | 
|Gain on sale
of product lines       |  |  |  |                    |     |                   | 
|Gain on sale
of investments         |  |  |  |                    |     |                   | 
|Gain (loss) on
sale of fixed assets |  |  |  |                    | 0.1  |                   | 
|Other                               |  |  |  |                    | (0.2 | )                 | 
|Total
Other Income, Net             |  |  |  | $                  | 2.7  |                   | 



During the three months ended
January 28, 2005, fully reserved notes receivable of $15.8 million were sold resulting in a gain on sale of $9.0 million.




Income Taxes




Our effective income tax rate
from continuing operations for the three and nine months ended July 29, 2005 was 4.2% and 5.5%, respectively, compared to 7.3% and 4.3% for the
comparable 2004 periods. Substantially all of our income tax provision for the three and nine months ended July 29, 2005 is due to foreign income
taxes. Our effective income tax rate has been reduced by changes in the valuation allowance recorded for our deferred tax assets. See Note 9 to the
financial statements for a detailed description of the accounting standards related to our recording of the valuation allowance. Beginning in fiscal
2002, we have not recorded income tax benefits in most jurisdictions where we have incurred pretax losses since the deferred tax assets generated by
the losses have been offset with a corresponding increase in the valuation allowance. Likewise, we have not recorded income tax expense in most
jurisdictions where we have pretax income since the deferred tax assets utilized to reduce income taxes




22


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payable have been offset with
a corresponding reduction in the valuation allowance. We will continue to maintain a nearly full valuation allowance on our deferred tax assets until
we have sustained a level of profitability that demonstrates our ability to utilize the deferred assets in the future. Until that time, we expect our
effective income tax rate will be substantially reduced. In addition, our deferred tax assets of $1,059.9 million, which are nearly fully reserved at
this time, should reduce our income taxes payable in future years.




Discontinued Operations




During fiscal 2004, we sold our
BroadAccess40 business, the business related to our Cuda cable modem termination system product line and related FastFlow Broadband Provisioning
Manager software, and the business related to our Singl.eView product line. We also entered into an agreement to sell the business related to our
Metrica service assurance software group and that transaction closed in the first quarter of our fiscal year 2005. In the third quarter of fiscal 2005,
we sold our ADC Systems Integration UK Limited business. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, these businesses were classified as discontinued operations in fiscal 2004 and the financial results are reported separately as
discontinued operations for all periods presented.




BroadAccess40




During the first quarter of
fiscal 2004, we entered into an agreement to sell our BroadAccess40 business, which was included in our Broadband Infrastructure and Access segment. We
classified this business as a discontinued operation beginning in the first quarter of fiscal 2004. This transaction closed on February 24, 2004. We
recorded a loss on the sale of the business of $3.6 million based on the value of the business assets and liabilities as of January 31, 2004.
Subsequent to January 31, 2004, adjustments of $3.0 million were made to increase the previous loss recorded.




The purchasers of the
BroadAccess40 business acquired all of the stock of our subsidiary that operated this business and assumed substantially all liabilities associated
with this business, with the exception of a $7.5 million note payable that was paid in full by us prior to the closing of the transaction. The
purchasers issued a promissory note to us for $3.8 million that was paid to us in full in May of 2005.




Cuda/FastFlow




During the third quarter of
fiscal 2004, we entered into an agreement to sell the business related to our Cuda cable modem termination system product line and related FastFlow
Broadband Provisioning Manager software, to BigBand Networks, Inc. (BigBand). This transaction closed on June 29, 2004. The business had
been included in our Broadband Infrastructure and Access segment. As consideration for this sale, we were issued a non-voting minority interest in
BigBand, which we accounted for under the cost method and has a nominal value. We also provided BigBand with a non-revolving credit facility of up to
$12.0 million with a term of three years. As of July 29, 2005, $7.0 million was drawn on the credit facility. We classified this business as a
discontinued operation beginning in the third quarter of fiscal 2004, and recorded a loss on sale of $2.6 million. In the fourth quarter, adjustments
of $2.3 million were made to increase the total loss to $4.9 million.




Singl.eView




During the third quarter of
fiscal 2004, we entered into an agreement to sell the business related to our Singl.eView product line to Intec Telecom Systems PLC (Intec)
for a cash purchase price of $74.5 million, subject to purchase price adjustments. The transaction closed on August 27, 2004. This business had been
included in our Professional Services segment. We also agreed to provide Intec with a $6.0 million non-revolving credit facility with a term of 18
months. As of July 29, 2005, $4.0 million was drawn on the credit facility. We classified this business as a discontinued operation in the third
quarter of fiscal 2004. In the fourth quarter of fiscal 2004, we recognized a gain on sale of $61.7 million. In our fiscal 2005, we recognized an
income tax benefit of $3.7 million relating to resolution of certain income tax contingencies.




23


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Metrica




During the fourth quarter of
fiscal 2004, we entered into an agreement to sell the business related to our Metrica service assurance software group to Vallent Corporation (formerly
known as WatchMark Corporation) (Vallent) for a cash purchase price of $35.0 million, subject to purchase price adjustments, and a $3.9
million equity interest in Vallent. The transaction closed on November 19, 2004. The equity interest constitutes less then a five percent ownership in
Vallent. This business had been included in our Professional Services segment. We classified this business as a discontinued operation in the fourth
quarter of fiscal 2004. In the first quarter of fiscal 2005, we recognized a gain on sale of $36.0 million.




In the second and third quarter
of fiscal 2005, we recorded adjustments to reduce the gain by $0.9 million and $1.0 million respectively, due to subsequent adjustments to the working
capital balances used to determine the purchase price. There may be additional future losses to record based on the resolution of certain contingencies
related to the sale. However, we are not able to estimate the amount of any such losses at this time.




ADC Systems Integration UK Limited




During the third quarter of
fiscal 2005, we sold our ADC Systems Integration UK Limited business for a nominal amount. The transaction closed on May 24, 2005. This business had
been included in our Professional Services segment. We classified this business as a discontinued operation in the third quarter of fiscal
2005.




The financial results of our
BroadAccess40, Cuda/FastFlow, Singl.eView, Metrica and ADC Systems Integration UK Limited businesses included in discontinued operations are as follows
(in millions):







|                                                       |  |  |  | Three Months Ended |       | Nine Months Ended | 
|------------------------------------------------------ |  |  |  | ------------------ | ----- | ----------------- | 
|
|Net
sales                                              |  |  |  | $                  | 0.7   |                   | 
|(Loss) Income
from discontinued operations             |  |  |  | $                  | (2.8  | )                 | 
|Gain (Loss) on
sale of subsidiaries                    |  |  |  |                    | (7.4  | )                 | 
|(Loss) Income
from discontinued operations, net of tax |  |  |  | $                  | (10.2 | )                 | 



Application of Critical Accounting Policies and
Estimates




There were no significant changes
to our critical accounting policies during the three and nine months ended July 29, 2005. See our most recent Annual Report filed on Form 10-K for
fiscal 2004 for a discussion of our critical accounting policies.




Liquidity and Capital Resources




Liquidity




Cash and cash equivalents and
available for sale securities, not subject to restrictions, were $592.1 million at July 29, 2005, or an increase of $64.5 million compared to $527.6
million as of October 31, 2004.




We invest a large portion of our
available cash in highly liquid and highly rated government, agency, and corporate debt securities of varying maturities. Our investment policy is to
manage our investment portfolio to preserve principal, maintain adequate liquidity at all times, and maximize returns subject to the Companys
investment guidelines.




Auction rate securities
reclassified from cash and cash equivalents to current available-for-sale securities as of October 31, 2004 were $427.3 million. Certain prior year
amounts have been reclassified to conform to the current year presentation. These reclassifications have no effect on reported
earnings.




Restricted cash balances, that
are pledged primarily as collateral for letters of credit and lease obligations, affect our liquidity. As of July 29, 2005, we had restricted cash of
$16.5 million compared to $21.9 million as of October 31, 2004, a decrease of $5.4 million. Restricted cash is expected to become available to us upon
satisfaction of the




24


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obligations pursuant to which
the letters of credit or guarantees were issued. We are entitled to the interest earnings on our restricted cash balances.




Operating Activities




Net cash provided by operating
activities from continuing operations for the first nine months of fiscal 2005 totaled $10.2 million; a $15.9 million decrease from the cash provided
by operating activities for the nine months ended July 31, 2004. This decrease was driven by an increase in inventory and accounts receivable caused by
the manufacture and sales of FTTX and wireless products, along with a $18.0 million reduction in accrued liabilities, primarily for restructuring and
incentive payments. Offsetting this additional cash outflow was increased year-over-year net income from continuing operations. Working capital
requirements will typically increase or decrease with changes in the level of net sales. In addition, the timing of certain accrued payments will
affect the quarterly cash flow. Our employee incentive payments are accrued throughout the fiscal year, but paid during the first quarter of the
subsequent fiscal year.




Investing Activities




Investing activities provided
$20.5 million during the first nine months of fiscal 2005. Cash provided by investing activities consisted primarily of $16.7 million in proceeds from
the net disposal of property and equipment, $9.0 million related to the sale of a vendor note receivable, $9.2 million from receipts on transaction
notes receivable and $33.6 million related to proceeds from the sale of our Metrica service assurance software group. Cash used by investing activities
include $7.1 million for the acquisition of OpenCell.




Financing Activities




Financing activities provided
$11.2 million of cash during the first nine months of fiscal 2005. This primarily consists of the proceeds from the issuance of common stock for
certain employee benefit plans.




Unsecured Debt




As of July 29, 2005, we had
$400.0 million of convertible unsecured subordinated notes, consisting of $200.0 million in 1.0% fixed rate convertible unsecured subordinated notes
maturing on June 15, 2008, and $200.0 million of convertible unsecured subordinated notes with a variable interest rate and maturing on June 15, 2013.
The interest rate for the variable rate notes is equal to the 6-month LIBOR plus 0.375%. The interest rate for the variable 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 on December 15, 2003 for both the fixed and
variable rate notes). The interest rate on the variable rate notes is 3.99625% for the current six-month period ending December 15, 2005. The holders
of both the fixed and variable rate notes may convert all or some of their notes into shares of our common stock at any time prior to maturity at a
conversion price of $28.091 per share. We may not redeem the fixed rate notes anytime prior to their maturity date. We may redeem any or all of the
variable rate notes at any time on or after June 23, 2008.




Off-Balance-Sheet Arrangements and Contractual
Obligations




Our liquidity is not dependent on
the use of off-balance-sheet financing arrangements other than in connection with our operating leases. There has been no material change in our
contractual obligations out of the ordinary course of our business since the end of fiscal 2004. See our Annual Report on form 10-K for the fiscal year
ended October 31, 2004, for additional information regarding our contractual obligations.




Working Capital and Liquidity
Outlook




Our main source of liquidity
continues to be our unrestricted cash and our current available-for-sale securities. We expect that we will be able to generate an increase in cash
from operations for the remainder of fiscal 2005. Similar to the third fiscal quarter of 2005, we expect that in the fourth fiscal quarter we will
further increase cash provided by operating activities from continuing operations, with income expected to remain high year-over-year and cash to
support working capital requirements expected to moderate relative to the first half of our fiscal 2005. We currently anticipate that our available
cash resources, which include existing cash and cash equivalents, will




25


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be sufficient to meet our
anticipated needs for working capital and capital expenditures to execute our near-term business plan, based on current business operations and
economic conditions so long as we are able to maintain breakeven or positive cash flow from operations. We believe that our entire restructuring
accrual of $29.1 million as of July 29, 2005 will be paid from our unrestricted cash as follows:


| |  | $2.3 million for employee severance will be paid by the end of
the third quarter of fiscal 2006;
|- |  | ------------------------------------------------------------------------------------------------

| |  | $10.9 million for facilities consolidation costs, which relate
principally to excess leased facilities, will be paid by the end of the third quarter in fiscal 2006; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | the remainder of $15.9 million, which also relates to excess
leased facilities, will be paid over the respective lease terms ending through 2015.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------



We also believe that our
unrestricted cash on hand will also enable us to pursue strategic opportunities, including possible product line or business acquisitions. However, if
the cost of one or more acquisition opportunities exceeds our existing capital resources, additional sources of capital may be required. We do not
currently have any committed lines of credit or other available credit facilities, and it is uncertain whether such facilities could be obtained in
sufficient amounts or on acceptable terms. Any plan to raise additional capital may involve an equity-based or equity-linked financing, such as another
issuance of convertible debt or the issuance of common stock or preferred stock, which would be dilutive to existing shareholders.




Our $200 million of convertible
notes do not mature until June 15, 2008, and the other $200 million of convertible notes do not mature until June 15, 2013. All convertible notes have
a conversion price of $28.091 per share. In addition, our deferred tax assets, which are nearly fully reserved at this time, should reduce our income
tax payable on taxable earnings in future years.




Cautionary Statement Regarding Forward Looking
Information




The foregoing Managements
Discussion and Analysis of Financial Condition and Results of Operations, as well as the Notes to the Condensed Consolidated Financial Statements,
contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. Forward-looking statements represent our expectations or beliefs concerning future events, including
but not limited to the following: any statements regarding future sales; profit percentages; earnings per share and other results of operations; our
estimates of probable liabilities relating to pending litigation; the continuation of historical trends; expectations or beliefs regarding the
marketplace in which we operate; the sufficiency of our cash balances and cash generated from operating and financing activities for our future
liquidity; and capital resource needs and the effect of regulatory changes. We caution that any forward-looking statements made by us in this report or
in other announcements made by us are qualified by important factors that could cause actual results to differ materially from those in the
forward-looking statements. These factors include, without limitation: the magnitude and duration of the recovery from the significant downturn in the
communications equipment industry which was primarily during ADCs fiscal 2001 through 2003, particularly with respect to the demand for equipment
by telecommunication service providers, from which a majority of our sales are derived; our ability to restructure our business to achieve, maintain
and grow operating profitability; macroeconomic factors that influence the demand for telecommunications services and the consequent demand for
communications equipment; possible consolidation among our customers, competitors or vendors which could cause disruption in our customer relationships
or displacement of us as an equipment vendor to the surviving entity in a customer consolidation; our ability to keep pace with rapid technological
change in our industry; our ability to make the proper strategic choices with respect to product line acquisitions or divestitures; our ability to
integrate the operations of any acquired businesses with our own operations; increased competition within our industry and increased pricing pressure
from our customers; our dependence on relatively few customers for a majority of our sales as well as potential sales growth in market segments we
presently feel have the greatest growth potential; fluctuations in our operating results from quarter-to-quarter, which are influenced by many factors
outside of our control, including variations in demand for particular products in our portfolio which have varying profit margins; the impact of
regulatory changes on our customers willingness to make capital expenditures for our equipment and services; financial problems, work
interruptions in operations or other difficulties faced by some of our customers, which can influence future sales to these customers as well as our
ability to collect amounts due us; economic and regulatory




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conditions both in the United States and outside of the United States, as approximately
  45.4% of our sales come from non-U.S. jurisdictions; our ability to protect
  our intellectual property rights and defend against infringement claims made
  by third parties; possible limitations on our ability to raise additional capital
  if required, either due to unfavorable market conditions or lack of investor
  demand; our ability to attract and retain qualified employees; our ability to
  maintain key competencies during a period of reduced resources and restructuring;
  potential liabilities that could arise if there are design or manufacturing
  defects with respect to any of our products; our ability to obtain raw materials
  and components, and our increased dependence on contract manufacturers to make
  certain of our products; changes in interest rates, foreign currency exchange
  rates and equity securities prices, all of which will impact our operating results;
  our ability to successfully defend or satisfactorily settle our pending litigation;
  and other risks and uncertainties, including those identified in Exhibit 99
  to this Form 10-Q which is incorporated by reference herein. We disclaim any
  intention or obligation to update or revise any forward-looking statements.




ITEM
  3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




As disclosed in our Annual Report
on Form 10-K for the year ended October 31, 2004, our major market risk exposure relates to adverse fluctuations in certain commodity prices, interest
rates, security prices and foreign currency exchange rates. Market fluctuations could affect our results of operations and financial condition
adversely. We, at times, reduce this risk through the use of derivative financial instruments. We do not enter into derivative financial instruments
for the purpose of speculation.




We are exposed to interest rate
risk as a result of issuing $200.0 million of convertible unsecured subordinated notes on June 4, 2003 that have a variable interest rate. The interest
rate on these notes is equal to 6-month LIBOR plus 0.375%. The interest rate on these notes is reset semiannually on each interest payment date, which
is June 15 and December 15 of each year until their maturity in fiscal 2013. The interest rate for the current six-month period ending December 15,
2005 is 3.99625%. Assuming interest rates rise, an additional 100 basis points, 500 basis points and 1,000 basis points, our annual interest expense
would increase by $2.0 million, $10.0 million and $20.0 million, respectively.




We offer a non-qualified 401(k)
excess plan to allow certain executives to defer earnings in excess of the annual individual contribution and compensation limits on 401(k) plans
imposed by the U.S. Internal Revenue Code. Under this plan, the salary deferrals and our matching contributions are not placed in a separate fund or
trust account. Rather, the deferrals represent our unsecured general obligation to pay the balance owing to the executives upon termination of their
employment. In addition, the executives are able to elect to have their account balances indexed to a variety of diversified mutual funds (stock, bond
and balanced), as well as to our common stock. Accordingly, our outstanding deferred compensation obligation under this plan is subject to market risk.
As of July 29, 2005, our outstanding deferred compensation obligation related to the 401(k) excess plan was $4.9 million, of which $1.1 million was
indexed to ADC common stock. Assuming a 20%, 50% and 100% aggregate increase in the value of the investment alternatives to which the account balances
may be indexed, our outstanding deferred compensation obligation would increase by $1.0 million, $2.5 million and $4.9 million, respectively, and we
would incur an expense of a like amount.




We are exposed to market risk
from changes in foreign currency exchange rates. Our primary risk is the effect of foreign currency exchange rate fluctuations on the U.S. dollar value
of foreign currency denominated operating sales and expenses. Our largest exposure comes from the Mexican peso. The result of a 10% weakening in the
U.S. dollar to Mexican peso denominated sales and expenses would result in a reduction in operating income of $1.1 million for the quarter ended July
29, 2005. This exposure remained unhedged as of July 29, 2005.




We are also exposed to foreign
currency exchange risk as a result of changes in intercompany balance sheet accounts and other balance sheet items. At July 29, 2005, these balance
sheet exposures were hedged through the use of foreign exchange forward contracts with maturities of less than 12 months. Principal currencies hedged
included the Australian dollar, British pound, and Canadian dollar.




During July 2005, the
Peoples Bank of China announced that it would change its policy of fixing the value of the Yuan to the U.S. dollar to a floating rate regime
managed against a basket of currencies. Although this change may create additional foreign currency risk, we do not expect that it will have a material
impact on our results of operations or foreign currency risk management strategy.




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ITEM
  4.  CONTROLS AND PROCEDURES




Under the supervision and with
the participation of our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), we
evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the Exchange Act)). Based on that evaluation, our CEO and CFO have concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures were effective. During the period covered by this Quarterly Report on Form 10-Q, there
was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.




PART II. OTHER INFORMATION




ITEM
  1.  LEGAL PROCEEDINGS




On May 19, 2003, we were served
with a lawsuit that was filed in the United States District Court for the District of Minnesota. The complaint named ADC and several of our current and
former officers, employees and directors as defendants. After this lawsuit was served, we were served with two substantially similar lawsuits. All
three of these lawsuits were consolidated into a single lawsuit captioned In Re ADC Telecommunications, Inc. ERISA Litigation. This lawsuit has
been brought by individuals who seek to represent a class of participants in our Retirement Savings Plan who purchased our common stock as one of the
investment alternatives under the Retirement Savings Plan from February 2000 to present. The lawsuit alleges a breach of fiduciary duties under the
Employee Retirement Income Security Act. On February 2, 2004, we filed a motion to dismiss this lawsuit, which was denied by the court. This case is
now in the discovery phase. A hearing has been held regarding whether the class should be certified. A decision from that hearing is currently
pending.




On June 6, 2005, the Eighth
Circuit Court of Appeals upheld a decision of the United States District Court for the District of Minnesota to dismiss another class action suit
brought against us. This lawsuit was brought by Wanda Kinermon in March 2003. The complaint also named ADC, William J. Cadogan, our former Chairman and
Chief Executive Officer, and Robert E. Switz, our current Chief Executive Officer and former Chief Financial Officer, as defendants. After this lawsuit
was served, we were named as a defendant in 11 other substantially similar lawsuits. These shareowner lawsuits, including the suit brought by Ms.
Kinermon, were consolidated into a single lawsuit captioned In Re ADC Telecommunications, Inc. Securities Litigation. The lawsuit purported to
bring suit on behalf of a class of purchasers of our publicly traded securities from August 17, 2000 to March 28, 2001. The complaint alleged that we
violated the securities laws by making false and misleading statements about our financial performance and business prospects during this period. It is
unclear at this time whether plaintiffs will attempt to appeal.




We are a party to various other
lawsuits, proceedings and claims arising in the ordinary course of business or otherwise. As of July 29, 2005, we had recorded $6.5 million in loss
reserves in the event of adverse outcomes in these matters. At this time, we believe the ultimate resolution of these lawsuits, proceedings and claims
will not have a material adverse impact on our business, results of operations or financial condition. However, litigation by its nature is uncertain,
and we cannot predict the ultimate outcome of these matters, or any potential liability associated with the same, with any certainty.




28


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|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

As previously disclosed on our Current Report on Form 8-K filed on July 27, 2005, William T. Pieper announced that he was resigning from the position of Vice President, Controller effective August 10, 2005, as he has accepted a position at another company.  Mr. Piepers resignation was not the result of any disagreement with the Company or its current management on any matter relating to our operations, policies or practices.  Gokul Hemmady, the Companys Chief Financial Officer and former Controller will assume the responsibilities of Principal Accounting Officer until a permanent replacement is named for the Controller position.  We are currently in the process of searching for a replacement.

ITEM 6. EXHIBITS

See Exhibit Index on page 31 for a description of the documents that are filed as exhibits to this Quarterly Report on Form 10-Q or incorporated by reference herein.  Any document incorporated by reference is identified by a parenthetical referencing the SEC filing which included the document. We will furnish to a securityholder upon request a copy of any Exhibit at cost.







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SIGNATURES

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

Dated: September 7, 2005

|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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ADC TELECOMMUNICATIONS, INC.

EXHIBIT INDEX TO FORM 10-Q

FOR THE THREE AND NINE MONTHS ENDED JULY 29, 2005

|ExhibitNo. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|---------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|           |  | Agreement and Plan of Merger, dated July 21, 2005, by and among ADC Telecommunications, Inc., Falcon Venture Corp., Fiber Optic Network Solutions Corp. and Michael J. Noonan. (Incorporated by reference to Exhibit 2.1 of ADCs Current Report on Form 8-K filed on July 21, 2005.)                                                                                                                                                                                                          
|2-a        | 
|2-b        |  | Amendment, dated August 16, 2005, to Agreement and Plan of Merger, dated July 21, 2005, by and among ADC Telecommunications, Inc., Falcon Venture Corp., Fiber Optic Network Solutions Corp. and Michael J. Noonan. (Incorporated by reference to Exhibit 2.1 of ADCs Current Report on Form 8-K filed on August 18, 2005.)                                                                                                                                                                   
|3-a        |  | Restated Articles of Incorporation of ADC Telecommunications, Inc., conformed to incorporate amendments dated January 20, 2000, June 30, 2000, August 13, 2001, March 2, 2004 and May 9, 2005.                                                                                                                                                                                                                                                                                                 
|3-b        |  | Restated Bylaws of ADC Telecommunications, Inc., as amended effective May 10, 2005.  (Incorporated by reference to Exhibit 3-f to ADCs Quarterly Report on Form 10-Q for the quarter ended April 30, 2005.)                                                                                                                                                                                                                                                                                   
|4-a        |  | Form of certificate for shares of common stock of ADC Telecommunications, Inc.  (Incorporated by reference to Exhibit 4-a to ADCs Quarterly Report on Form 10-Q for the quarter ended April 30, 2005.)                                                                                                                                                                                                                                                                                        
|4-b        |  | Rights Agreement, as amended and restated July 30, 2003, between ADC Telecommunications, Inc. and Computershare Investor Services, LLC as Rights Agent (Incorporated by reference to Exhibit 4-b to ADCs Form 8-A/A filed on July 31, 2003)                                                                                                                                                                                                                                                   
|           | 
|4-c        |  | Indenture dated as of June 4, 2003 between ADC Telecommunications, Inc. and U.S. Bank National Association (Incorporated by reference to Exhibit 4-g of ADCs Quarterly Report on Form 10-Q for the quarter ended July 31, 2003).                                                                                                                                                                                                                                                              
|           | 
|4-d        |  | Registration Rights Agreement dated as of June 4, 2003 between ADC Telecommunications, Inc. and Banc of America Securities LLC, Credit Suisse First Boston LLC and Merrill Lynch Pierce Fenner & Smith Incorporated as 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       |  | ADC Telecommunications, Inc. Global Stock Incentive Plan, as amended and restated through May 10, 2005                                                                                                                                                                                                                                                                                                                                                                                         
|10-b       |  | ADC Telecommunications, Inc. Executive Stock Ownership Plan for Section 16 Officers effective as of January 1, 2004 (amended as of May 10, 2005)                                                                                                                                                                                                                                                                                                                                               
|10-c       |  | Voting Agreement, dated July 21, 2005, by and among ADC Telecommunications, Inc. and the Shareholders of Fiber Optic Network Solutions Corp. listed on the signature page to the Voting Agreement.  (Incorporated by reference to Exhibit 10.1 to ADCs Current Report on Form 8-K filed on July 25, 2005.)                                                                                                                                                                                    
|31-a       |  | Certification of principal executive officer required by Exchange Act Rule 13a-14(a)                                                                                                                                                                                                                                                                                                                                                                                                           
|31-b       |  | Certification of principal financial officer required by Exchange Act Rule 13a-14(a)                                                                                                                                                                                                                                                                                                                                                                                                           
|32         |  | Certifications furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                      
|99         |  | Risk Factors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



31