ADC Telecommunications Reports Record Third Quarter 1999 Results - Company Financial Information

Cambridge Telcom Report, August 23, 1999

ADC Telecommunications, Inc. (Nasdaq: ADCT, www.adc.com) Wednesday reported record third quarter sales of $444 million for the quarter ended July 31, 1999, an increase of 23% over the $362 million in the comparable quarter of 1998. The year-over-year increase in sales reflects 35% growth in the Broadband Connectivity product group combined with 12% growth in the Broadband Transport and Access and 9% growth in the Integrated Solutions product groups. International sales were 20% of total sales in both this year's third quarter and the third quarter of 1998. North America and Europe remained ADC's largest sales regions in the quarter.

In the third quarter of 1999, ADC recorded a one-time charge for purchased in-process research and development expenses of $58 million ($41 million after tax or $0.29 per diluted share) in connection with the acquisitions of Spectracom and Pathway during the quarter.

Operating income increased 28% to a record third quarter result in 1999 of $79 million, before the one-time charge, compared to $62 million in the prior-year third quarter. Before the one-time charge, operating margin was 17.8% compared to 17.0% in the third quarter of 1998. Both operating income and margin increased as a result of higher sales volumes combined with higher gross margins.

Net income in 1999, before the one-time charge, was also a third quarter record of $52 million ($0.37 per diluted share) increasing 28% in this year's third quarter over $41 million ($0.30 per diluted share) in the third quarter of 1998. On a reported basis, which includes the impact of the one-time charge, net income was $11 million ($0.08 per diluted share) in the third quarter of 1999.

"The combination of rapidly growing, new competitive communications service providers in deregulated markets and the insatiable global demand for broader bandwidths in communication networks is driving ADC's growth," said William J. Cadogan, chairman and chief executive officer of ADC Telecommunications. "During the quarter, we positioned ADC to participate in new growth opportunities through the pending acquisition of Saville Systems for communications software, the completed acquisitions of Spectracom for optical components and Pathway for broadband transport, as well as a strategic investment in Siara Systems, a next-generation networking equipment company. As a leader in multiservice communications networks, ADC is well positioned to supply the broadband hardware systems, communications software solutions and systems integration services that communications service providers need to increase the speed and capacity of voice, video and Internet/data communications delivered to businesses and residences worldwide."

REVIEW OF PRODUCT GROUPS

A review of ADC's performance by its three product groups - Broadband Connectivity, Broadband Transport and Access, and Integrated Solutions - follows.

Broadband Connectivity

Broadband Connectivity sales in the third quarter of 1999 increased 35% to $238 million from $177 million in the comparable prior-year quarter. In the third quarter of 1999, sales of copper- and fiber-connectivity systems - growing 47% over last year's third quarter - continued to reach all-time record levels for any quarter. Strong worldwide growth in broadband connectivity systems continues as a result of growth in Internet/data traffic and digital services, which are creating demand for broader bandwidth connections, and the growth of new service providers (such as competitive transport and access providers and Internet service providers), which are creating demand for connectivity to new and existing communication networks. The strong growth of copper- and fiber-connectivity sales was partially offset by lower sales of wireless products primarily as a result of the divestiture and discontinuance of certain products from the former Wireless Systems Group as part of the strategic restructuring announced in the first quarter of 1999.

During the quarter, ADC won an exclusive three-year worldwide contract to supply Concert Communications with copper and fiber distribution frames to provide cross connect, termination and access points for high-speed communications networks in Europe, the Americas and Asia/Pacific regions.

In conjunction with ADC's goal to become a major supplier of fiber-optic components and modules, Spectracom was acquired in the quarter. Spectracom is a developer of high powered 980nm pump laser chips and modules. Through ADC's acquisitions of fiber-optic component companies in recent years, combined with ADC's manufacturing excellence and extensive sales, service and support capabilities, ADC is building a leadership position in supplying passive and active optical components and modules used by original equipment manufacturers (OEMs) to produce broadband communications systems.

Broadband Transport and Access

Broadband Transport and Access sales increased 12% to $154 million in the third quarter of 1999 compared to $138 million in the comparable prior-year quarter. Third quarter 1999 sales in this group increased year-over-year primarily as a result of the acquisition of Teledata Communications in November 1998 combined with increased sales of channel and data service units, ATM transport/access products, as well as new shipments of Cellworx systems, partially offset by lower sales of customer premise access products from original equipment manufacturers.