<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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: 0-10018
DSC COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 54-1025763
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 COIT ROAD, PLANO, TEXAS 75075
(Address of principal executive offices) (Zip Code)
(214) 519-3000
(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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
NUMBER OF SHARES OUTSTANDING
TITLE OF EACH CLASS AS OF APRIL 29, 1994
Common Stock, $.01 Par Value 55,980,912
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
March 31, December 31,
1994 1993
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- - ---------------------------------------------
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . $ 112,506 $ 154,888
Marketable securities. . . . . . . . . . . 193,075 158,920
Receivables. . . . . . . . . . . . . . . . 132,841 139,962
Inventories. . . . . . . . . . . . . . . . 140,898 122,869
Contract development costs . . . . . . . . 8,183 5,978
Other current assets . . . . . . . . . . . 26,956 19,414
----------- ------------
Total current assets. . . . . . . . . 614,459 602,031
----------- ------------
PROPERTY AND EQUIPMENT, at cost. . . . . . . 411,994 380,480
Less accumulated depreciation
and amortization. . . . . . . . . . . . . (210,415) (200,697)
----------- ------------
201,579 179,783
----------- ------------
LONG-TERM RECEIVABLES. . . . . . . . . . . . 11,760 16,515
CAPITALIZED SOFTWARE DEVELOPMENT COSTS . . . 34,468 33,485
COST IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED, NET . . . . . . . . . 49,536 50,317
OTHER. . . . . . . . . . . . . . . . . . . . 30,615 18,286
----------- ------------
Total assets. . . . . . . . . . . . . $ 942,417 $ 900,417
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ---------------------------------------------
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . $ 51,943 $ 48,450
Accrued liabilities. . . . . . . . . . . . 114,475 112,993
Customer advances. . . . . . . . . . . . . 17,780 15,712
Income taxes payable . . . . . . . . . . . 5,319 4,460
Current portion of long-term debt. . . . . 13,396 13,664
----------- ------------
Total current liabilities . . . . . . 202,913 195,279
----------- ------------
LONG-TERM DEBT, net of current portion . . . 17,282 56,748
NONCURRENT INCOME TAXES
AND OTHER LIABILITIES . . . . . . . . . . . 38,990 30,590
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, issued -
60,902 in 1994 and 60,047 in 1993;
outstanding - 55,873 in 1994 and
55,018 in 1993 . . . . . . . . . . . . . 609 600
Additional capital . . . . . . . . . . . . 595,162 558,222
Unrealized losses on securities,
net of income taxes. . . . . . . . . . . (1,118) --
Retained earnings. . . . . . . . . . . . . 132,036 102,435
----------- ------------
726,689 661,257
Treasury stock, at cost, 5,029 shares. . . . (43,457) (43,457)
----------- ------------
Total shareholders' equity. . . . . . 683,232 617,800
----------- ------------
Total liabilities and
shareholders' equity. . . . . $ 942,417 $ 900,417
----------- ------------
----------- ------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(IN Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
March 31,
----------------------------
1994 1993
------------- ------------
<S> <C> <C>
Revenue. . . . . . . . . . . . . . . . . . . $ 200,874 $ 156,193
Cost of revenue. . . . . . . . . . . . . . . 103,859 88,952
------------ ------------
Gross profit . . . . . . . . . . . . . . . 97,015 67,241
------------ ------------
Operating costs and expenses:
Research and product development . . . . . 24,703 21,253
Selling, general and administrative. . . . 30,598 25,955
Other operating costs. . . . . . . . . . . 2,478 1,771
----------- ------------
Total operating costs and expenses . . . 57,779 48,979
----------- ------------
Operating income . . . . . . . . . . . . . 39,236 18,262
Interest expense . . . . . . . . . . . . . . 230 1,811
Interest income. . . . . . . . . . . . . . . (3,486) (1,183)
Other expense, net . . . . . . . . . . . . . 1,379 661
----------- ------------
Income before income taxes . . . . . . . 41,113 16,973
Income taxes . . . . . . . . . . . . . . . . 11,512 5,601
----------- ------------
Net income . . . . . . . . . . . . . . . $ 29,601 $ 11,372
----------- ------------
----------- ------------
Income per share (1) . . . . . . . . . . . . $ 0.25 $ 0.12
----------- ------------
----------- ------------
Average shares used in computation (1) . . . 116,155 95,653
<FN>
- - ------------------
(1) On April 27, 1994, the Board of Directors authorized a two-for-one stock
split, effected in the form of a 100% stock dividend, to shareholders of
record on May 11, 1994. All average shares and income per share data for
all periods presented have been restated to retroactively reflect the
stock split.
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------------
1994 1993
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . $ 29,601 $ 11,372
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization. . . . . . . . 12,227 10,554
Amortization of capitalized software
development costs . . . . . . . . . . . . 5,227 4,036
Income tax benefit related
to stock options. . . . . . . . . . . . . -- 3,000
(Increase) decrease in current and
long-term receivables . . . . . . . . . . 10,876 (4,281)
Increase in inventory. . . . . . . . . . . . (18,029) (2,211)
Increase (decrease) in customer advances . . 2,068 (13,650)
Other, including changes in current
payables and other assets . . . . . . . . (930) 8,112
Increase in noncurrent income taxes
and other liabilities . . . . . . . . . . 8,400 2,406
----------- ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES. . . . . . . . . . . . 49,440 19,338
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment. . . . . . . (32,760) (17,061)
Additions to capitalized software
development costs. . . . . . . . . . . . . . . (6,210) (3,984)
Purchase of long-term investment securities. . . (12,500) --
Purchases of marketable securities . . . . . . . (221,084) --
Proceeds from sales of marketable securities . . 184,389 --
Other. . . . . . . . . . . . . . . . . . . . . . (517) 184
----------- ------------
NET CASH USED FOR
INVESTING ACTIVITIES. . . . . . . . . . . . (88,682) (20,861)
----------- ------------
</TABLE>
(Continued)
<PAGE>
<TABLE>
<CAPTION>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
----------------------------
1994 1993
------------- ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term borrowings . . . . . . . . (3,610) (5,153)
Proceeds from the sale of common stock
from employee stock programs . . . . . . . . . 1,895 3,073
Redemptions of 8% subordinated
convertible debentures . . . . . . . . . . . . (1,696) --
Other. . . . . . . . . . . . . . . . . . . . . . 271 (671)
----------- ------------
NET CASH USED FOR
FINANCING ACTIVITIES. . . . . . . . . . . . (3,140) (2,751)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS. . . . . (42,382) (4,274)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . 154,888 69,839
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . $ 112,506 $ 65,565
----------- ------------
----------- ------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid. . . . . . . . . . . . . . . . . . $ 600 $ 3,806
----------- ------------
----------- ------------
Income taxes paid. . . . . . . . . . . . . . . . $ 3,754 $ 1,569
----------- ------------
----------- ------------
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes To Condensed Consolidated Financial Statements
March 31, 1994 and 1993 and December 31, 1993
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements reflect,
in the opinion of management, all adjustments necessary to present fairly the
Company's financial position and results of operations and cash flows. Such
adjustments are of a recurring nature unless otherwise disclosed herein. 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 rules and regulations promulgated by the
Securities and Exchange Commission. However, the Company believes that the
disclosures contained herein are adequate to make the information presented not
misleading. Quarterly consolidated financial results may not be indicative of
annual consolidated financial results.
The Company has not paid or declared a cash dividend on its common stock since
its organization.
Certain prior years' financial statement information has been reclassified to
conform with the current year financial statement presentation.
These unaudited financial statements should be read in conjunction with the
audited financial statements and accompanying notes included in the Company's
1993 Annual Report to Shareholders for the year ended December 31, 1993.
INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------- ------------
<S> <C> <C>
Raw Materials . . . . . . . . . $ 52,228 $ 47,845
Work in Process . . . . . . . . 10,850 12,471
Finished Goods. . . . . . . . . 77,820 62,553
--------- ---------
$ 140,898 $ 122,869
--------- ---------
--------- ---------
</TABLE>
<PAGE>
CREDIT AGREEMENT
On February 24, 1994, the Company entered into an uncollateralized revolving
credit facility, which expires on February 24, 1997, with two banks providing
for borrowings up to $50,000,000. The maximum borrowings available are reduced
by the value of outstanding letters of credit issued by the banks on behalf of
the Company up to $25,000,000. Borrowings under the facility bear interest at
the prime rate or at 0.75% to 1.50% above the LIBOR rate. A commitment fee of
0.35% on the daily average unused portion of the facility is also assessed. The
agreement contains various financial covenants. There have been no borrowings
under the credit facility during the three months ended March 31, 1994. Letters
of credit issued by the banks under this agreement on behalf of the Company were
approximately $6,205,000 at March 31, 1994.
DEBT
On January 14, 1994, the Company called for the redemption of all of the
outstanding 8% subordinated convertible debentures. The debentures were
convertible, at the option of the holder, into shares of the Company's common
stock at $54.50 per share. In February 1994, $34,720,000 of debentures were
converted into approximately 637,000 shares of common stock, and $1,696,000 of
debentures were redeemed for cash.
INCOME TAX EXPENSE
The Company's income tax expense includes foreign, state (primarily related to
Puerto Rico) and federal income taxes. The estimated effective income tax rate
is based upon estimates for the full year for a number of variables including,
among other things, forecasted income, a deduction for gains by employees from
exercises of stock options and the degree to which net operating losses may be
utilized. The effective tax rate could change as estimates of these variables
change throughout the year.
COMMITMENTS AND CONTINGENCIES
Contingent Liabilities
The Company periodically sells customer receivables and operating leases under
agreements which contain recourse provisions. The Company could be obligated to
repurchase receivables and operating leases which were previously sold on a
partial recourse basis, the terms of which allow the Company to limit its risk
of loss to $5,214,000 at March 31, 1994. The Company has guarantees of
$9,580,000 outstanding at March 31, 1994, supporting Company and third-party
performance bonds to customers and others, of which $6,205,000 were
collateralized by letters of credit issued under the Company's credit facility.
The Company believes it has
<PAGE>
adequate reserves for any ultimate losses associated with these contingencies.
The Company enters into forward foreign exchange contracts to hedge certain
receivables and firm contracts for delivery of products and services which are
denominated in foreign currencies. At March 31, 1994, the Company had forward
foreign exchange contracts of $21,105,000 to hedge future receipts in such
currencies. Gains and losses related to the forward contracts are recognized as
part of the cost of the underlying transactions being hedged. Forward foreign
exchange contracts generally have maturities of one year or less and contain an
element of risk that the counterparty may be unable to meet the terms of the
agreement. However, the Company minimizes such risk exposure by limiting the
counterparty to major financial institutions. Management believes the risk of
incurring such losses is remote and any losses therefrom would be immaterial.
For information regarding litigation, refer to Part II - Other Information, Item
1. "Legal Proceedings".
SUBSEQUENT EVENTS
On April 27, 1994, the shareholders approved an increase in the number of
authorized shares of common stock from 100 million shares to 250 million shares.
In addition on April 27, 1994, the Board of Directors authorized a two-for-one
stock split, effected in the form of a 100% stock dividend, to shareholders of
record on May 11, 1994. The par value of common stock will remain at $.01 per
share. When effected, the stock split will result in the issuance of
approximately 56,004,000 new shares of common stock and the transfer of
approximately $560,040 from Additional Capital to Common Stock,
representing the par value of the shares issued. All average shares and income
per share data have been restated to retroactively reflect the stock split.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
For the three months ended March 31, 1994, the Company reported revenue of
$200.9 million and net income of $29.6 million, or $0.25 per share, compared to
revenue of $156.2 million and net income of $11.4 million, or $0.12 per share,
for the three months ended March 31, 1993. As stated previously, all average
shares and income per share data for all periods presented have been restated
to retroactively reflect the stock split. See "Subsequent Events" in Notes to
Condensed Consolidated Financial Statements for further information.
Revenue for the 1994 first quarter increased 29% compared to the same period in
1993. This revenue growth was due to a higher volume of deliveries in all
product areas, particularly switching and access products with access products'
revenue more than doubling from the prior year first quarter level. Gross profit
as a percentage of revenue was approximately 48% for the quarter compared to 43%
in the same period of 1993. This improvement was due primarily to cost reduction
activities, higher business levels and a favorable product mix. The Company's
gross margin percentage can vary significantly from period to period due to
changes in the relative mix of product deliveries, including software
enhancements.
Research and product development expenses increased to $24.7 million, or 12% of
revenue, for the three month period ended March 31, 1994 compared to $21.3
million, or 14% of revenue, for the three month period ended March 31, 1993.
Selling, general and administrative expenses increased $4.6 million in the
first three months of 1994 to $30.6 million but declined as a percentage of
revenue to 15% for the three months ended March 31, 1994 from 17% for the
same period in 1993.
Income before income taxes for the first quarter of 1994 was favorably impacted
by substantially lower interest expense and an increase in interest income.
Interest expense declined approximately $1.6 million for the three month period
of 1994 from the same period of 1993 due to the conversion of substantially all
of the Company's outstanding subordinated convertible debentures in 1993 and
early 1994 into shares of the Company's common stock. Interest income for the
first quarter of 1994 increased by approximately $2.3 million from the same
period in 1993 due primarily to the investment of the proceeds from the November
1993 equity offering in marketable securities.
<PAGE>
The Company's estimated effective income tax rate was 28% for the three month
period ended March 31, 1994. See "Income Taxes" in Notes to Condensed
Consolidated Financial Statements for further information.
The Company's future quarterly and annual operating results may be affected
by a number of factors, including the successful enhancement of existing
products; introduction and market acceptance of new products on a timely
basis; timing of orders from major customers; mix of products sold; product
costs; manufacturing lead times; and changes in general economic conditions,
any of which could have an adverse impact on operations.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash and cash equivalents at March 31, 1994 were $112.5 million
compared to $154.9 million at December 31, 1993 while marketable securities were
$193.1 million at March 31, 1994 compared to $158.9 million at December 31,
1993.
Cash of $49.4 million was generated from operating activities. Non-debt working
capital, excluding cash, cash equivalents and marketable securities, increased
$12.8 million to $119.4 million at March 31, 1994. This increase was due
primarily from a growth in finished inventories to support existing and expected
customer requirements.
Investing activities during the three months ended March 31, 1994 included
additions to property and equipment of $32.8 million, of which approximately
$16.4 million related to the purchase of 148 acres of land near the Company's
present campus location to be used for future building expansion. The Company's
rapid business expansion during 1993 and expected future domestic and
international growth have and will continue to increase capital requirements
including facilities and manufacturing and development equipment. As a result,
it is anticipated that 1994 capital requirements will substantially exceed 1993
capital expenditures. During the first quarter of 1994, the Company purchased
$12.5 million of long-term interest bearing investment securities collateralized
by U.S. Treasury obligations.
Financing activities during the three months ended March 31, 1994 included
proceeds of $1.9 million from the issuance of the Company's common stock related
to employee stock programs. Additionally, the Company made $3.6 million of
scheduled payments on long-term borrowings during the three months ended March
31, 1994. The Company periodically finances facilities and equipment
requirements under operating leases. At March 31, 1994, operating lease
obligations increased to over $100.0 million from $62.8 million at December 31,
1993, primarily due to the Company's expansion into new facilities under a
long-term lease in the United Kingdom.
<PAGE>
As discussed in the Notes to Condensed Consolidated Financial Statements,
debentureholders converted approximately $34.7 million of debentures into
approximately 637,000 shares of common stock and approximately $1.7 million of
debentures were redeemed for cash.
In February 1994, the Company entered into a new unsecured revolving credit
facility, which expires on February 24, 1997, providing for borrowings up to
$50.0 million. The maximum available borrowings are reduced by the value of
outstanding letters of credit issued on behalf of the Company up to $25.0
million. The agreement contains various financial covenants. There have been no
borrowings under the credit facility during the three months ended March 31,
1994. At March 31, 1994, the Company could borrow up to $43.8 million under the
credit agreement, net of outstanding letters of credit. See "Credit Agreement"
in Notes to Condensed Consolidated Financial Statements for further
information.
The Company believes that it has the financial resources required to support its
expected business growth, including working capital expansion, necessary capital
expenditure requirements, operating lease obligations and scheduled debt
payments.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Litigation
In July, 1991, three complaints were filed in the United States District
Court for the Northern District of Texas by three individuals on behalf of
themselves and, purportedly, on behalf of an alleged class of persons who
purchased common stock of the Company during the period from February 7, 1991
through July 9, 1991. Named as defendants in these actions are the Company,
two of the Company's principal officers, and a former principal officer of the
Company. In December, 1991, four plaintiffs, including each of the three
original plaintiffs, filed a Consolidated Complaint (the "Consolidated
Complaint") in the United States District Court for the Northern District of
Texas against the Company and six individuals, each of whom is either a
present or former officer of the Company, including two present directors and
one former director. The Consolidated Complaint amends and consolidates the
three original complaints and purports to be a class action on behalf of an
alleged class of persons who purchased common stock of the Company during the
period from February 7, 1991 through October 31, 1991.
The Consolidated Complaint alleges violations of Sections 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and
negligent misrepresentation as a result of alleged misrepresentations and
omissions with respect to information contained
<PAGE>
in press releases, reports to the Company's shareholders, and certain filings
and periodic reports filed with the Securities and Exchange Commission by the
Company. The plaintiffs allege that the Company made certain misleading
statements regarding the quality and reliability of its products and the
Company's financial condition and its prospects. The Consolidated Complaint
seeks actual and punitive damages in unspecified amounts, prejudgment
interest, and attorneys' fees. On February 3, 1992, the Company filed a
motion with the Court seeking dismissal of the complaint. In March, 1993,
the Court dismissed the Consolidated Complaint without prejudice. On
February 25, 1994, the United States Fifth Circuit Court of Appeals affirmed
the Court's decision to dismiss the Consolidated Complaint. On March 25, 1994,
the plaintiffs filed a petition for a rehearing which was subsequently denied.
The plaintiffs have the option to seek further discretionary review by the
United States Supreme Court.
On January 26, 1994, C. L. Grimes, a shareholder of the Company, filed
a suit in Delaware Chancery Court (the "Court"), derivatively purportedly on
behalf of the Company as the real party in interest and as a shareholder of
the Company, seeking a declaration that the Employment Agreement of James L.
Donald, his Executive Income Continuation Plan, and the 1990 Long-Term
Incentive Compensation Plan, as it applies to Mr. Donald and all other
benefits of Mr. Donald, including previously-granted Company stock options,
are null and void. The defendants in the suit are Mr. Donald, all current
non-employee directors, and two former directors of the Company. The Company
itself is a nominal defendant. The plaintiff contends that Mr. Donald's
employment contract contains an improper delegation of the Board of Directors'
authority to Mr. Donald and excess payments. The suit also contends that the
salary and benefits established for Mr. Donald pursuant to the Donald
agreements referred to above and by the Company's Board of Directors are
excessive and constitute a diversion and waste of corporate assets. The suit
seeks an injunction restraining Mr. Donald from exercising any stock options,
taking any action to implement any of the Donald agreements, or declaring a
constructive termination of his employment, and also seeks unspecified damages
against the defendants and Grimes' legal fees. On April 15, 1994, Mr. Grimes
filed an application for leave to amend his complaint to include claims of
various defects in the Company's proxy statement transmitted to stockholders
in connection with its Annual Meeting held on April 27, 1994. The plaintiff
seeks a decree from the Court that the proxy statement in so far as it relates
to the Company's 1994 Long Term Incentive Plan (the "LTIP") and actions taken
with respect to the LTIP are null and void and seeks to enjoin this Company
from implementing the LTIP. The individual defendants will file a responsive
pleading and intend to vigorously contest Grimes' claims.
On July 20, 1993, the Company filed suit against Advanced Fibre
Communications ("AFC"), a California corporation; Quadrium Corporation
("Quadrium"), a California corporation; Alan E. Negrin ("Negrin"); and
<PAGE>
Henri Sulzer ("Sulzer") in the United States District Court for the Eastern
District of Texas, Marshall Division, Civil Action No. 2-93CV126. The Company
seeks a declaratory judgment that Negrin and Sulzer are not entitled to any
stock options or cash payments under the Company's 1990 Stock Option and Cash
Payment Plan because of these defendants' alleged breaches of certain
employment-related agreements entered into with the Company. The Company further
seeks a declaration that AFC's products, including the UMC 1000 Digital Loop
Carrier, are the proprietary property of the Company under the terms of certain
Proprietary Information Agreements and certain Consulting Agreements with
Quadrium. The Company also seeks unspecified damages for breach of contract,
civil conspiracy, and tortious interference. The individual defendants have both
filed counterclaims whereby they claim entitlement to certain stock options and
cash payments under several of the Company's stock option plans. AFC has also
filed a counterclaim alleging that the Company has violated the Sherman
Antitrust Act and a California statutory antitrust act known as the Cartwright
Act. AFC further claims that the Company has (a) tortiously interfered with
existing and prospective contractual relationships, (b) committed industrial
espionage and misappropriation, (c) trespassed on AFC's business premises, (d)
converted certain property of AFC, and (e) committed unfair competition. AFC
also seeks a declaratory judgment that it owns all rights to its product, the
UMC Digital Loop Carrier. AFC asks the court to award unspecified actual
damages, treble damages under the antitrust statutes, punitive damages,
injunctive relief, and attorneys' fees. Although the outcome of litigation is
inherently uncertain, the Company believes that it has valid and substantial
claims against all of the defendants and valid defenses to all of the
counterclaims. The case is in the early stages of discovery, and the Company
intends to vigorously prosecute its claims and defend all of the defendants'
counterclaims.
The Company does not believe that the ultimate resolution of any of these
suits will have a material adverse effect on its consolidated financial
position.
The Company is also a party to other legal proceedings which, in the
opinion of management, are not expected to have a material adverse effect on the
Company's consolidated financial position.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1994 Annual Meeting of Stockholders was held on April 27, 1994.
The following matters were voted on by the stockholders:
1. ELECTION OF THREE DIRECTORS: The following persons were elected to the
Board of Directors as Class I Directors for terms extending through the
1997 Annual Meeting of stockholders:
Shares Voted
----------------------
For Withheld
---------- --------
Frank J. Cummiskey 47,536,321 168,410
Raymond J. Dempsey 47,536,330 168,401
James L. Fisher 47,536,644 168,087
2. APPROVAL TO AMEND THE RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK FROM 100,000,000
TO 250,000,000. The Company's Restated Certificate of Incorporation
provided for the issuance of 100,000,000 shares of the Company's Common
Stock having a par value of $.01 per share. The Restated Certificate of
Incorporation, as amended, provides for the issuance of up to 250,000,000
shares of Common Stock by management of the Company. At the 1994 Annual
Meeting of Stockholders, the Company's stockholders approved the
increase in the authorized shares. The vote was 34,189,606 shares in favor,
13,431,766 shares against, and 83,359 shares abstaining.
3. APPROVAL OF THE DSC COMMUNICATIONS CORPORATION 1994 LONG-TERM INCENTIVE
COMPENSATION PLAN. Subject to stockholder approval, the Company's Board of
Directors approved the DSC Communications Corporation 1994 Long-Term
Incentive Compensation Plan (the "1994 LTIP"). The 1994 LTIP is set forth
in its entirety in Exhibit A to the Company's Definitive Proxy Statement
previously filed in connection with the 1994 Annual Meeting of
Stockholders. At the 1994 Annual Meeting of Stockholders, the Company's
stockholders approved the 1994 LTIP. The vote was 40,321,939 shares in
favor, 6,880,143 shares against, 313,375 shares abstaining and 189,274
broker non-votes.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
11. Computation of Income Per Share.
B. Reports on Form 8-K.
No reports on Form 8-K have been filed during the three months ended March
31, 1994.
<PAGE>
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.
DSC COMMUNICATIONS CORPORATION
Dated: May 13, 1994 By: s/ Kenneth R. Vines
-------------------
Kenneth R. Vines
Vice President and
Controller, duly
authorized officer and
principal accounting
officer
<PAGE>
EXHIBIT 11
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Computation of Income Per Share
(In Thousands)
(Unaudited)
The following table sets forth the computation of shares used in the calculation
of income per share for the three months ended March 31, 1994 and 1993. All
amounts have been restated to retroactively reflect a two-for-one stock split
declared by the Board of Directors on April 27,1994 for shareholders of record
on May 11, 1994.
<TABLE>
<CAPTION>
AVERAGE SHARES USED IN INCOME PER SHARE CALCULATION:
Three Months Ended March 31,
----------------------------------------------------------
1994 1993
--------------------------- ---------------------------
Fully Fully
Primary Diluted (A) Primary Diluted (A)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average
shares outstanding
during the period. . . . . . . . . . . . 110,868 -- 89,645 --
Common share equivalents
outstanding:
Options and warrants
issued and
contingently issuable. . . . . . . . . 6,886 -- 8,460 --
Assumed purchase of
treasury shares. . . . . . . . . . . . (1,599) -- (2,452) --
----------- ----------- ----------- -----------
Weighted average shares
used in calculation. . . . . . . . . . . 116,155 -- 95,653 --
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<FN>
- - ----------------
(A) Fully diluted income per share is not shown since the dilutive effect is
less than three percent.
</TABLE>
