1
UNITED STATES
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 December 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT of 1934
For the transition period from to
-------------------- -------------------
Commission file number 1-5517
SCIENTIFIC-ATLANTA, INC.
(Exact name of Registrant as specified in its charter)
GEORGIA 58-0612397
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE TECHNOLOGY PARKWAY, SOUTH
NORCROSS, GEORGIA 30092-2967
(Address of principal executive offices) (Zip Code)
404-903-5000
(Registrant's telephone number, including area code)
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
--- ---
As of January 28, 1994, Scientific-Atlanta, Inc. had outstanding
37,529,020 shares of common stock.
1 OF 10
2
PART I - FINANCIAL INFORMATION
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
--------------------------- -------------------------
December 31, January 1, December 31, January 1,
1993 1993 1993 1993
------------ ----------- ------------- -----------
SALES $ 178,033 $ 186,647 $ 348,325 $ 357,847
---------- ---------- ---------- -----------
COSTS AND EXPENSES
Cost of sales 124,795 142,570 245,495 265,759
Sales and administrative 28,770 28,128 56,279 53,858
Research and development 14,488 15,225 26,778 29,234
Interest expense 416 227 668 411
Interest (income) (756) (884) (1,597) (1,621)
Other (income) expense, net 17,057 (519) 16,924 (747)
---------- ----------- --------- -----------
Total costs and expenses 184,770 184,747 344,547 346,894
---------- ----------- ---------- -----------
EARNINGS (LOSS) BEFORE INCOME TAXES AND
ACCOUNTING CHANGES (6,737) 1,900 3,778 10,953
PROVISION FOR INCOME TAXES
Current (1,232) 492 2,920 3,370
Deferred (924) (17) (1,711) (632)
---------- --------- --------- ----------
EARNINGS (LOSS) BEFORE ACCOUNTING CHANGES (4,581) 1,425 2,569 8,215
Cumulative effect of changes for postretirement
benefits, postemployment benefits and income taxes -- -- -- (4,700)
NET EARNINGS (LOSS) $ (4,581) $ 1,425 $ 2,569 $ 3,515
========== ========== ========== ===========
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
PRIMARY
Before accounting changes $ (0.12) $ 0.04 $ 0.07 $ 0.23
Accounting changes -- -- -- (0.13)
---------- ---------- ---------- -----------
Net earnings (loss) $ (0.12) $ 0.04 $ 0.07 $ 0.10
========== ========== ========== ===========
FULLY DILUTED $ (0.12) $ 0.04 $ 0.07 $ 0.10
========== ========== ========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
PRIMARY 38,598 37,182 38,583 36,898
---------- ========== ========== ============
FULLY DILUTED 38,598 37,350 38,613 37,028
========== ========== ========== ============
DIVIDENDS PER SHARE PAID $ 0.03 $ 0.03 $ 0.06 $ 0.05 2/3
========== ========== ========== ===========
SEE ACCOMPANYING NOTES
2 0F 10
3
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
In Thousands
--------------------------
December 31, July 2,
1993 1993
------------ -------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 106,518 $ 103,536
Receivables, less allowance for doubtful
accounts of $4,297,000 at December 31
and $4,224,000 at July 2 150,469 150,851
Inventories 123,317 127,408
Deferred income taxes and taxes recoverable 26,557 23,919
--------- ----------
TOTAL CURRENT ASSETS 406,861 405,714
--------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and improvements 3,730 3,658
Buildings and improvements 26,431 26,721
Machinery and equipment 102,350 92,066
--------- ----------
132,511 122,445
Less-Accumulated depreciation and amortization 56,737 50,813
--------- ----------
75,774 71,632
--------- ----------
COST IN EXCESS OF NET ASSETS ACQUIRED 8,063 8,438
--------- ----------
OTHER ASSETS 62,909 38,426
--------- ----------
TOTAL ASSETS $ 553,607 $ 524,210
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current maturities of
long-term debt $ 6,691 $ 5,962
Accounts payable 39,800 47,224
Accrued liabilities 104,073 76,850
--------- ----------
TOTAL CURRENT LIABILITIES 150,564 130,036
--------- ----------
LONG-TERM DEBT, less current maturities 1,369 1,398
--------- ----------
OTHER LIABILITIES 42,745 39,886
STOCKHOLDERS' EQUITY --------- ----------
Preferred stock, authorized 50,000,000 shares;
no shares issued -- --
Common stock, $.50 par value, authorized
350,000,000 shares; issued 37,445,387 at December 31
and 37,196,194 shares at July 2 18,723 18,598
Additional paid-in capital 134,683 129,072
Retained earnings 204,604 204,274
Accumulated translation adjustments 919 946
--------- ----------
358,929 352,890
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 553,607 $ 524,210
========= ==========
SEE ACCOMPANYING NOTES
3 of 10
4
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended
----------------------------------
December 31, January 1,
1993 1993
------------ ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: $ 16,268 $ (3,416)
--------- -----------
INVESTING ACTIVITIES:
Purchases of property, plant and equipment (13,597) (10,733)
Other (909) 214
--------- ----------
Net cash used by investing activities (14,506) (10,519)
--------- ----------
FINANCING ACTIVITIES:
Net short-term borrowings 727 2,414
Principal payments on long-term debt (27) (25)
Dividends paid (2,239) (2,024)
Issuance of common stock 2,759 22,113
--------- ----------
Net cash provided by financing activities 1,220 22,478
--------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 2,982 8,543
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 103,536 90,888
--------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 106,518 $ 99,431
========= ==========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 605 $ 404
========= ==========
Income taxes paid, net $ 5,087 $ 5,732
========= ==========
SEE ACCOMPANYING NOTES
4 of 10
5
NOTES:
A. The accompanying consolidated financial statements
include the accounts of the company and all subsidiaries after
elimination of all material intercompany accounts and
transactions. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. These condensed
financial statements should be read in conjunction with the
consolidated financial statements and related notes contained in
the 1993 Form 10-K. The financial information presented in the
accompanying statements reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of
the periods indicated. All such adjustments are of a normal
recurring nature.
B. Earnings per share for the three and six months ended December 31,
1993 and January 1, 1993 has been computed based on the weighted
average number of shares outstanding and equivalent shares derived
from dilutive stock options. See Exhibit 11.
C. Inventories consist of the following:
December 31, July 2,
1993 1993
------------ ---------
Raw materials and work-in-process $ 73,414 $ 71,780
Finished goods 49,903 55,628
--------- ---------
Total inventory $ 123,317 $ 127,408
========= =========
D. Other expense for the three and six months ended December 31, 1993
included a pre-tax charge of $17.5 million ($0.31 per share after
taxes), from the settlement of securities class action litigation.
Under the terms of the settlement, $14.0 million is payable to the
members of the plaintiff class and the remainder is costs incurred
by the company in connection with the suit.
E. During the fourth quarter of fiscal 1993, the company adopted
Financial Accounting Standards Board Statement (SFAS) No. 106
"Postretirement Benefits", No. 112 "Postemployment Benefits" and No.
109 "Accounting for Income Taxes" effective as of the first quarter
of fiscal 1993. Charges of $6.7 million and $1.9 million for SFAS
No. 106 and SFAS No. 112 respectively, were partially offset by a
credit of $3.9 million for SFAS No. 109 resulting in one-time,
after-tax charges of $4.7 million, $0.13 per share, to previously
reported earnings for the six months ended January 1, 1993.
5 of 10
6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Scientific-Atlanta had shareholders' equity of $358.9 million and cash on hand
was $106.5 million at December 31, 1993. Cash generated from operating
activities was used for capital expenditures. Expenditures focused on
equipment for new product development and increased manufacturing capacity.
The current ratio of 2.7:1 at December 31, 1993, was down slightly from 3.1:1
at July 2, 1993 due to increases in accrued liabilities. Accrued liabilities
increased due to provisions for the settlement of securities class action
litigation and higher customer down payments. Payment of the litigation
settlement was made after the end of the second quarter. At December 31, 1993,
total debt was $8.1 million or 2 percent of total capital invested. Short-term
debt consists of working capital borrowings to support the operations of
foreign subsidiaries.
RESULTS OF OPERATIONS
Sales for the quarter ended December 31, 1993 were $178.0 million, as
compared to $186.6 million for the same quarter a year ago. Within the
Communications sector, higher sales of cable television distribution equipment
and addressable home communications terminals (converters) were offset by
reduced sales due to the completion of the PrimeStar television contract,
lower digital audio sales, and weakness in sales of network systems.
Additionally, sales for the quarter were negatively impacted by component
shortages and limited converter inventories. Sales of instrumentation
equipment were flat compared to the prior year.
Quarter Year-to-Date
--------------------------- ---------------------------
% Decrease % Decrease
% of from % of from
Amount Total Prior Year Amount Total Prior Year
------ ----- ---------- ------ ----- ----------
Communications $140.7 79% (6)% $275.7 79% (3)%
Instrumentation 37.3 21% -- 72.6 21% --
------ ---- ---- ------ ---- ----
Consolidated $178.0 100% (5)% $348.3 100% (3)%
====== ==== ==== ====== ==== ====
Gross margins improved 6.3 and 3.8 percentage points over the
comparable three and six month periods in the previous year. Manufacturing
efficiencies and increased volumes in distribution and addressable converter
products contributed to the year-to-year improvement in gross margins.
Margins in the prior year were adversely impacted by higher than anticipated
launch costs associated with the company's digital video compression products.
Research and development costs were down from the prior year due
primarily to lower spending within the Instrumentation sector and the
reallocation of engineering resources from research and development efforts to
specific customer orders. The revenue from these orders will be recognized in
future periods and, accordingly, the related costs have been inventoried.
During the quarter, selling and administrative expense increased 2
percent over the prior year. Lower professional fees were partially offset by
other increases in administrative expenses. During the three and six months
ended December 31, 1993, sales and marketing expenses increased, reflecting
costs associated with ongoing investments to support expansion into
international markets and the introduction of new products.
The company's effective income tax rate was 32 percent for fiscal 1994
compared to 25 percent for the prior year. The lower provision in fiscal 1993
reflected benefits from interest income on tax-exempt investments and benefits
from international tax planning.
6 of 10
7
Other expense of $16.9 million for the six months ended December 31, 1993
included a one time charge related to the settlement of securities class action
litigation of $17.5 million and rental income, gains from the sale of certain
assets, and other miscellaneous items of $0.6 million. The litigation
settlement was the only significant item in other expense during the second
quarter of fiscal 1994. Other income of $0.7 million for the six months ended
January 31, 1993 included net gains from investments of $0.2 million and other
miscellaneous items of $1.0 million and losses from foreign currency
transactions of $0.5 million. There were no significant items in other income
during the second quarter of fiscal 1993.
Net earnings, before including the effect of the one time charge for the legal
settlement, were $7.3 million and $14.5 million for the three and six months
ended December 31, 1993. Net earnings, before the $4.7 million charge for the
cumulative effect of accounting changes, were $1.4 million and $8.2 million
for the comparable periods of the prior year. Improved margins were the
primary factor in the year-to-year increases.
7 of 10
8
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Pursuant to an Order dated January 31, 1994, the United States
District Court for the Northern District of Georgia approved the
settlement of Henderson, et al vs. Scientific-Atlanta, Inc. (Civil
Action No. 1:88 - CV - 2208 - RLV), a previously reported class
action lawsuit against the Registrant alleging violations of Rule
10b-5. See the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 2, 1993. Under the terms of the settlement,
the Registrant, without admitting any liability, deposited with the
Court the sum of $14 million to be distributed to the members of the
class in return for a full and complete release of all claims against
the Registrant. The case was commenced in September, 1988.
Item 4 Submission of Matters to a Vote of Security Holders
The following information is furnished with respect to matters
submitted to a vote of security holders through the
solicitation of proxies:
(a) The matters described below were submitted to a vote of
security holders at the Annual Meeting of Shareholders,
November 11, 1993.
(b) Election of directors:
Votes For Withhold Authority
--------- ------------------
Marion H. Antonini 33,822,735 187,631
William E. Kassling 33,831,589 178,777
Wilbur B. King, Mylle Bell Mangum, Alonzo L. McDonald, James F. McDonald, David J. McLaughlin,
James V. Napier, and Sidney Topol continue as directors.
(c) (i) Selection of Arthur Andersen & Co. as independent auditors:
Votes For Votes Against Abstain
---------- ------------- -------
38,899,242 45,179 65,945
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. Description
----------- -----------
11 Computation of Earnings Per Share
(b) No reports on Form 8-K were filed during the quarter ended December 31, 1993.
8 of 10
9
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.
Scientific-Atlanta, Inc.
------------------------
(Registrant)
Date: February 9, 1994 /s/ Kenneth V. Jaeggi
---------------- -------------------------
Kenneth V. Jaeggi
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer and duly authorized officer of the
Registrant)
9 of 10