MANAGEMENT INCENTIVE PLAN DOCUMENT
Fiscal Year 2006
Plan Name and Effective
Date
The name of this Plan is the ADC
Telecommunications, Inc. Management Incentive Plan. The plan is
effective from November 1, 2005 through October 31,
2006.
Purpose
The purpose of the Plan is to
provide, with full regard to the protection of shareholder’s
investments, a direct financial incentive for eligible managers and
individual contributors to make a significant contribution to
ADC’s established goals.
Eligibility
Eligibility for Fiscal Year 2006
is limited to full or part-time regular employees in the U.S. and
in such other countries where ADC has specifically notified
employees of eligibility for participation in the Plan. Eligibility
for participation in this Plan is limited to such employees who
hold executive, certain management and higher-level individual
contributor positions. Temporary employees and independent
contractors are not eligible for participation in this plan. In
order to be eligible, an employee cannot participate in any other
ADC incentive plan, except as approved by the Compensation and
Organization Committee of the Board of Directors or the CEO, and
must be employed in an eligible position on or before
October 1, 2006.
Timing of
Payment
Payments that become due under
this Plan are made as soon as administratively feasible following
the close of ADC’s fiscal year, generally in late December or
early January. All payments are subject to appropriate
withholdings.
Plan
Goals
The Plan reinforces the key goals
that support ADC’s long-term strategic plans. The key factors
in ADC’s FY06 corporate success are net sales, pro forma
operating income and free cash flow. The key factors in ADC’s
FY06 regional success are net sales, pro forma operating income and
cash conversion cycles. For global business units, excluding APS,
the key factors for FY06 are net sales, global contribution margin
and inventory turns. For APS U.S., the key factors for FY06 are net
sales with product pull-through, net sales without product
pull-through, contribution margin with product pull-through, and
contribution margin without product pull-through. For APS France
and APS Germany, the key factors for FY06 are net sales with
product pull-through, net sales without product pull-through,
contribution margin and cash conversion cycle. These goals are set
at the ADC, regional, and global business unit levels. Accounting
methodology changes may dictate corresponding goal modifications
during the plan year.
1
Following is a description of the
plan components:
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Plan
Goal
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Definition
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The amount ADC
can recognize in accordance with General Accepted Accounting
Principles (GAAP) for goods shipped or services provided to
third party customers,
net of returns received and discounts.
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Pro Forma
Operating
Income
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Net sales less
the everyday expenses of doing business, including cost of
incentive
payments. It does not take into account interest income, interest
expense, or
other income/loss or income tax. It also excludes restructuring and
other one-time
expenses that are not reflective of the ongoing business. For FY06,
any stock
option expense will be excluded from pro forma operating income for
incentive
calculation.
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ADC Cash from
Operations including restructuring charges less capital
expenditures.
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Cash
Conversion
Cycle (Days)*
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Days Sales
Outstanding (DSO) plus Days of Inventory Supply (DoS) less
Days Payables
Outstanding (DPO).
Above metrics are based upon 3 rd party sales, net of
reserves and
calculated based upon the average monthly balances of inventory,
receivables, and
payables. Days of Inventory Supply = 360 / Inventory
Turns
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3 rd
party cost of sales divided by average monthly net inventory
balance.
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ADC divisional
product sales that are sold through ADC Professional Services
channels.
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Business
Unit
Contribution Margin
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Net sales less
the cost to produce the products or services sold and less
certain
costs directly associated with that business unit including but not
limited to
engineering, product management, and administrative expenses. It
does not take
into account operating expenses deemed regional during the
budgeting process,
corporate allocations, interest income, interest expense, other
income/loss or
income tax. It also excludes restructuring and other one-time
expenses that are
not reflective of the ongoing business. For FY06, any stock option
expense will be
excluded from business unit contribution margin for incentive
calculation.
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* For APS, the Cash Conversion Cycle calculation
only includes Furnish Cost of Goods Sold.
**For Global Connectivity
Solutions the measure is Adjusted Inventory Turns: (Inventory Turns
x Percent Ship-to-Request). Percent Ship-to-Request is based on
only Americas deliveries since the metric is not available
elsewhere.
NOTE: For the regions and
business units, revenue, contribution margin, and operating income
are measured on Plan foreign exchange rates.
Goal
Weightings
Employees serving multiple
business units and multiple regions have 100% of their incentive
plan based on ADC goals and results. Employees in the U.S.
dedicated to only one business unit have portion of their incentive
based on ADC results and a portion on global business unit results.
Employees outside of the U.S. dedicated to only one business unit
(excluding APS) ha
