Publish
Date: 01 November 2006
Destroy Date: 31 December 2007
Management Incentive Plan Document
Fiscal Year 2007
MANAGEMENT INCENTIVE PLAN
DOCUMENT
Fiscal Year 2007
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, 2006 through
October 31, 2007.
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 for
Fiscal Year 2007 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. 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, 2007.
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.
The Plan
reinforces the key goals that support ADC’s long-term
strategic plans. The key factors in ADC’s FY07 corporate
success are Pro Forma Operating Income, Free Cash Flow, and Net
Sales. The key factors in ADC’s FY07 Global Connectivity
Solutions success are Pro Forma Operating Income, adjusted
Inventory Turns, and Net Sales. For the Wireline and Wireless
Business Units, the key factors for FY07 are Pro Forma Operating
Income, Inventory Turns, and Net Sales. For APS U.S., the key
factors for FY07 are Pro Forma Operating Income including Product
Pull Through, Contribution Margin without Product Pull Through,
Days Sales Outstanding, and Net Sales including Product Pull
Through. For APS Germany, the key factors for FY07 are Pro Forma
Operating Income without Product Pull Through, Cash Conversion
Cycle, and Net Sales including Product Pull Through. Goals are set
at the ADC and Business Unit levels including regional goals for
GCS. Accounting methodology changes may dictate corresponding goal
modifications during the plan year.
Page 2
Following is a
description of the plan components:
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Plan
Goal
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Definition
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Pro Forma
Operating
Income
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Net Sales less
all relevant expenses incurred to produce the products or deliver
services. Expenses include direct material and labor costs as well
as regional and Business Unit costs, including engineering, sales
& marketing expenses, and corporate overhead costs. Pro Forma
Operating Income does not include interest income, interest
expense, income tax or other non-operating income. It also excludes
restructuring and other one-time expenses that are not reflective
of the ongoing business.
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Beginning in
FY07, corporate overhead costs not directly attributable to the
Business Unit will be assessed as a shared service charge set at a
fixed percentage of Revenue. ADC-level Pro Forma Operating Income
will reflect absorption of ALL corporate expenses including
variances above or below the level of the shared service
charge.
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The amount ADC
can recognize in accordance with Generally Accepted Accounting
Principles (GAAP) for goods shipped or services provided to
third party customers, net of returns received and
discounts.
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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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Represents the
average number of days between ADC cash payments for products,
services, labor, and operating expenses, and ADC cash receipts from
customers: days of receivables plus days of inventory supply less
days payables.
Above metrics are based upon monthly average balances of inventory,
receivables, and
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payables
relative to 3 rd party Net Sales and 3 rd party cost of sales.
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Represents a
measure of how many times per year ADC sells through its inventory
balance: 3 rd party cost of sales divided by average monthly
net inventory balance.
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A measure of
the amount of uncollected 3 rd party obligations to ADC (Accounts Receivable)
relative to average daily sales. The calculation is average monthly
net accounts receivable balance divided by average quarterly
3 rd
party Revenues divided by 90. (Also
called Days of Receivables)
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ADC 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.
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*For Global
Connectivity Solutions the measure is Adjusted Inventory Turns:
(Inventory Turns x percent ship-to-request).
Page 3
NOTE: For the
Business Units, Net Sales, Contribution Margin, and Pro-Forma
Operating Income are measured on Plan foreign exchange
rates.
Employees
serving multiple Business Units have 100% of their incentive plan
based on ADC goals and results. Employees dedicated at least 90% to
one Business Unit have a portion of their incentive based on ADC
results and a portion on Business Unit results. The weightings for
Business Unit participation are as follows:
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ADC
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BU or Regional
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Grade
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Weighting
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Weighting
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