<PAGE> 1
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 June 30, 1997
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)
(972) 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 X 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 July 25, 1997
- ----------------------------- ----------------------------
Common Stock, $0.01 Par Value 117,425,394
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
(Unaudited)
Assets
- ------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .............. $ 148,356 $ 155,101
Marketable securities .................. 148,781 178,938
Receivables ............................ 389,733 411,947
Inventories ............................ 369,137 343,566
Deferred income taxes .................. 60,857 61,086
Other current assets ................... 66,314 52,240
----------- -----------
Total current assets .............. 1,183,178 1,202,878
----------- -----------
PROPERTY AND EQUIPMENT, at cost .......... 824,199 764,671
Less accumulated depreciation
and amortization ...................... (396,658) (361,075)
----------- -----------
427,541 403,596
----------- -----------
LONG-TERM RECEIVABLES .................... 41,796 42,965
CAPITALIZED SOFTWARE DEVELOPMENT COSTS ... 61,865 51,634
COST IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED, NET ............... 144,243 146,025
OTHER .................................... 91,948 78,557
----------- -----------
Total assets .................. $ 1,950,571 $ 1,925,655
=========== ===========
Liabilities and Shareholders' Equity
- ------------------------------------------
CURRENT LIABILITIES
Short-term debt ........................ $ 5,346 $ 906
Accounts payable ....................... 125,257 99,824
Accrued liabilities .................... 255,694 297,101
Income taxes payable ................... 22,095 2,019
Current portion of long-term debt ...... 32,641 33,072
----------- -----------
Total current liabilities ......... 441,033 432,922
----------- -----------
LONG-TERM DEBT, net of current portion ... 235,028 274,602
NONCURRENT INCOME TAXES
AND OTHER LIABILITIES ................... 70,904 70,495
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, $0.01 par value, issued -
122,377 in 1997 and 122,241 in 1996;
outstanding - 117,388 in 1997 and
117,252 in 1996 ....................... 1,224 1,222
Additional capital ..................... 734,938 730,743
Unrealized gains (losses) on securities,
net of income taxes ................... 106 (147)
Accumulated translation adjustment ..... 2,086 8,743
Retained earnings ...................... 508,363 450,186
----------- -----------
1,246,717 1,190,747
Treasury stock, at cost, 4,989 shares .. (43,111) (43,111)
----------- -----------
Total shareholders' equity ........ 1,203,606 1,147,636
----------- -----------
Total liabilities and
shareholders' equity ........ $ 1,950,571 $ 1,925,655
=========== ===========
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
Page 2 of 16
<PAGE> 3
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue .................................. $ 382,883 $ 356,431 $ 729,086 $ 664,328
Cost of revenue .......................... 226,327 209,412 433,255 387,843
--------- --------- --------- ---------
Gross profit ........................... 156,556 147,019 295,831 276,485
--------- --------- --------- ---------
Operating costs and expenses:
Research and product development ....... 59,545 52,474 114,326 105,619
Selling, general and administrative .... 57,335 57,723 115,386 113,502
Other operating costs .................. 2,462 2,464 4,934 5,046
--------- --------- --------- ---------
Total operating costs and expenses ... 119,342 112,661 234,646 224,167
--------- --------- --------- ---------
Operating income ....................... 37,214 34,358 61,185 52,318
Interest income .......................... 4,513 6,225 9,551 13,251
Interest expense ......................... (4,988) (6,206) (10,812) (13,292)
Other income (expense), net .............. 30,708 (84) 33,910 605
--------- --------- --------- ---------
Income before income taxes ........... 67,447 34,293 93,834 52,882
Income taxes ............................. 25,630 13,031 35,657 20,095
--------- --------- --------- ---------
Net income ........................... $ 41,817 $ 21,262 $ 58,177 $ 32,787
========= ========= ========= =========
Income per share ......................... $ 0.35 $ 0.18 $ 0.49 $ 0.28
========= ========= ========= =========
Average shares used in per
share computation ................... 119,301 118,493 119,241 118,442
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
Page 3 of 16
<PAGE> 4
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................... $ 58,177 $ 32,787
Adjustments to reconcile net income to
net cash provided by (used for) operating
activities:
Depreciation and amortization ........................ 48,609 44,517
Amortization of capitalized software
development costs ................................. 12,276 12,828
Gain from the sales of stock received from
1996 litigation settlement ........................ (35,494) --
(Increase) decrease in current and
long-term receivables .................................. 13,861 (36,748)
Increase in inventories .................................. (28,547) (46,506)
Other, including changes in other
assets, current payables and other liabilities ......... (4,281) (31,856)
--------- ---------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES ............................. 64,601 (24,978)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment ...................... (77,850) (68,160)
Purchases of marketable securities ....................... (122,244) (883,919)
Proceeds from sales and maturities of marketable
securities ............................................. 152,447 898,209
Proceeds from sales of stock received from
1996 litigation settlement ............................. 35,494 --
Additions to capitalized software
development costs ...................................... (22,507) (18,071)
Other .................................................... (11,535) (2,293)
--------- ---------
NET CASH USED FOR
INVESTING ACTIVITIES ............................. (46,195) (74,234)
--------- ---------
</TABLE>
(Continued)
Page 4 of 16
<PAGE> 5
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Continued)
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term debt .............................. 4,440 33,677
Payments on long-term borrowings ......................... (29,443) (29,763)
Other .................................................... 619 3,300
--------- ---------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES ............................. (24,384) 7,214
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS ............................ (767) (400)
NET DECREASE IN CASH AND CASH
EQUIVALENTS ..................................... (6,745) (92,398)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 155,101 258,565
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 148,356 $ 166,167
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid ............................................ $ 9,618 $ 11,674
========= =========
Income taxes paid ........................................ $ 10,934 $ 48,228
========= =========
</TABLE>
See the accompanying Notes to Condensed Consolidated Financial Statements.
Page 5 of 16
<PAGE> 6
DSC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 1997 and 1996 and December 31, 1996
(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, 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 year's 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
1996 Annual Report to Shareholders for the year ended December 31, 1996.
INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- -----------
<S> <C> <C>
Raw Materials . . . . . . . . . . . . . . . $ 120,858 $ 127,495
Work in Process . . . . . . . . . . . . . . . 29,263 25,724
Finished Goods . . . . . . . . . . . . . . . 219,016 190,347
--------- ---------
$ 369,137 $ 343,566
========= =========
</TABLE>
Page 6 of 16
<PAGE> 7
CREDIT AGREEMENTS AND SHORT-TERM DEBT
The Company has a five-year, unsecured $160.0 million revolving credit facility
with several banks. This facility provides for borrowings and issuances of
letters of credit in various currencies. The maximum borrowings available
under the facility are reduced by the value of outstanding letters of credit
issued by the banks on behalf of the Company. The letters of credit issued by
the banks under this agreement at June 30, 1997 totaled $7.4 million, including
$5.0 million issued to support various foreign subsidiary credit agreements.
This facility contains various financial covenants, and there have been no
borrowings under this agreement during the six months ended June 30, 1997. Two
of the Company's foreign subsidiaries also have credit agreements providing for
borrowings of up to $13.7 million with local banks, of which $5.3 million was
outstanding at June 30, 1997.
OTHER INCOME (EXPENSE), NET
Other income (expense), net in the first and second quarters of 1997 included
gains of approximately $4.0 million and $31.5 million, respectively, from sales
of common stock received from a settlement of litigation in 1996.
INCOME TAX EXPENSE
The Company's estimated effective income tax rate is 38%. The income tax
expense included federal, foreign, and state (including Puerto Rico) income
taxes.
COMMITMENTS AND CONTINGENCIES
Contingent Liabilities
The Company periodically sells customer receivables and leases under agreements
which contain recourse provisions. The Company could be obligated to
repurchase a portion of the sales-type and operating lease receivables which
were previously sold on a partial recourse basis, the terms of which allow the
Company to limit its risk of loss to approximately $7.8 million at June 30,
1997. The Company also has guarantees of $45.0 million outstanding at June 30,
1997 supporting bid and performance bonds to customers and others, of which
$2.4 million were collateralized by letters of credit issued under the
Company's credit facility. The Company believes it has adequate reserves for
any ultimate losses associated with these contingencies.
Page 7 of 16
<PAGE> 8
The Company, in management of its exposure to fluctuations in foreign currency
exchange rates, enters into forward foreign exchange contracts to hedge firm
commitments which are denominated in foreign currencies. The 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 by limiting the counterparty to major
financial institutions. Management believes the risk of incurring such losses
is remote, and any losses therefrom would not be material. At June 30, 1997,
the Company had forward foreign exchange contracts of $87.1 million
outstanding.
Litigation
On June 11, 1996, a federal district court entered a $137.7 million judgment in
the Company's favor and against Next Level Corporation ("Next Level") and two
former Company employees. The Company had filed suit in 1995 alleging theft of
trade secrets and diversion of corporate opportunities. On February 28, 1997,
the Fifth Circuit Court of Appeals upheld the judgment. The Company and Next
Level appealed to an En Banc panel of judges in the Fifth Circuit. Both
appeals were denied, and the case has been remanded to the federal district
court for entry of judgment.
In August 1996, the Company filed suit against Samsung Information Systems
America, Inc., Samsung Electronics Co., Ltd. and several former employees of
the Company (collectively the "Defendants") alleging claims for breach of
contract, theft of trade secrets, unfair competition and tortious interference
with contract and prospective contractual relations related to the Company's
development of a next generation switching system. The Company is seeking
unspecified damages. The Company is also seeking an injunction against the
Defendants to prevent them from using the Company's trade secrets. In late
December 1996, the Defendants filed a counterclaim against the Company,
alleging claims for declaratory judgment, wrongful injunction, tortious
interference with actual and prospective contractual relations,
misappropriation of trade secrets, unfair competition, exclusion from telephony
switch market, civil conspiracy, fraud and negligent misrepresentation, breach
of fiduciary or confidential relationship, defamation and intentional
infliction of emotional distress. These allegations arise primarily out of the
filing and prosecution of the Company's suit against the Defendants.
In October 1996, the Company filed suit against Pulse Communications, Inc.
("Pulsecom") alleging contributory copyright infringement and misappropriation
of trade secrets relating to the manufacture and sale of a POTS line card
advertised as compatible with the Company's Litespan-2000 system. The Company
sought damages and an injunction barring further infringement of the Company's
intellectual property rights by Pulsecom and its agents. Pulsecom has filed a
counterclaim alleging that the Universal Voice Grade line card manufactured by
the Company for the Litespan-2000 system infringes a patent assigned to
Pulsecom. On May 7, 1997, the Federal District Court for the Eastern District
of Virginia denied the Company's claims. The Company intends to file an
Page 8 of 16
<PAGE> 9
appeal. Pulsecom's patent infringement claims against the Company will be
heard in a separate trial expected to take place during the third quarter of
1997.
On May 25, 1994, the Company filed suit against DGI Technologies, Inc. ("DGI"),
alleging that DGI misappropriated the Company's trade secrets regarding digital
trunk interface cards and microprocessor cards. The Company seeks damages and
permanent injunctive relief. DGI brought counterclaims for damages and
injunctive and declaratory relief for alleged violations of federal antitrust
statutes, tortious interference, industrial espionage, misappropriation of
trade secrets, trespass, conversion, and unfair competition, based upon
allegations that the Company's claims constitute "sham" litigation, that the
Company's statements to customers about the impact of their use of DGI products
on the Company's warranties are unlawful attempts to exclude competition, and
that the Company has unlawfully tied the sale of its microprocessors to the
sale of other products. The case was tried in January 1997, and the jury
returned a verdict. The Court sealed the verdict pending entry of judgment.
The Company is also party to other routine legal proceedings incidental to its
business.
The Company does not believe the ultimate resolution of the above litigation
will have a material adverse effect on its consolidated financial position.
COMMON STOCK
At the April 30, 1997 Annual Shareholders' Meeting, the shareholders approved
an amendment to increase the total number of authorized shares of common stock
available for grant under the DSC Communications Corporation 1993 Employee
Stock Option and Securities Award Plan from 10.0 million shares to 15.75
million shares.
Page 9 of 16
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Except for the historical information contained herein, the matters discussed
or incorporated by reference in this Quarterly Report on Form 10-Q herein,
including the matters relating to future performance, are forward looking
statements that are dependent upon a number of risks and uncertainties that
could cause actual results to differ materially from those in the forward
looking statements. These risks and uncertainties include, but are not limited
to, economic conditions, product demand and industry capacity, competitive
products and pricing, manufacturing efficiencies, research and new product
development, protection of intellectual property, patents, and technology,
ability to attract and retain highly qualified personnel, availability of
components and critical manufacturing equipment, facility construction and
startups, the regulatory and trade environment, and other risks indicated from
time to time in the Company's filings with the Securities and Exchange
Commission.
Results of Operations
For the three months ended June 30, 1997, the Company reported revenue of
$382.9 million, an increase of $26.5 million from $356.4 million in the 1996
period. Net income for the 1997 second quarter was $41.8 million, or $0.35 per
share. Excluding a pre-tax gain of approximately $31.5 million (after-tax gain
of $19.5 million, or $0.16 per share) from a sale of stock received from a 1996
litigation settlement, net income was $22.3 million, or $0.19 per share. Net
income for the second quarter of 1996 was $21.3 million, or $0.18 per share.
For the six months ended June 30, 1997, the Company recorded revenue of $729.1
million and net income of $58.2 million, or $0.49 per share, which includes a
pre-tax gain of approximately $35.5 million (after-tax gain of $22.0 million,
or $0.18 per share) from sales of stock in both the first and second quarters.
For the first half of 1996, revenue was $664.3 million and net income was $32.8
million, or $0.28 per share.
Revenue in the second quarter and first half of 1997 increased 7% and 10%,
respectively, compared to the same periods of the prior year due primarily to
higher volumes of switching and access product deliveries, net of lower levels
of transport product revenues. Gross profit as a percentage of revenue was 41%
for both the quarter and six month periods ended June 30, 1997 as compared to
41% and 42%, respectively, in the same periods of 1996. As experienced in the
past, the Company's gross margin percentage and operating performance could
vary significantly from period to period in the future due to changes in the
relative mix of product deliveries and software content.
Page 10 of 16
<PAGE> 11
DSC Communications A/S, the Company's Danish subsidiary, continued to incur
operating losses in the first half of 1997 due primarily to the delayed
introduction of a new generation of optical transmission equipment. Deliveries
of certain of these products have begun. However, future near-term
profitability of the Company's Danish operations is dependent upon the
successful market acceptance of these products.
Research and product development expense was $59.5 million, or 16% of revenue,
in the second quarter of 1997 compared to $52.5 million, or 15% of revenue, in
the same period of 1996. Research and development expense for the first half
of 1997 and 1996 was $114.3 million and $105.6 million, respectively, or 16% of
revenue in both periods. The industry in which the Company operates requires
substantial investment in product development, capital and, at times,
inventory prior to customer acceptance of new products or enhancements to
existing products. One of the keys to the Company's overall success has been
anticipating the appropriate timing of such activities. Delays in product
completion and/or slower than expected market acceptance of certain products,
including iMTN, Airspan, and newer products of the Company's Danish operations,
have in the past negatively impacted the Company's operating performance and
also, in certain cases, resulted in adjustments to carrying values of assets.
Future operating performance could be impacted should timing of further product
development and/or market acceptance be delayed.
Selling, general and administrative expenses totaled $57.3 million and $115.4
million for the three months and six months ended June 30, 1997, respectively,
compared to $57.7 million and $113.5 million, respectively, for the same
periods in 1996. As a percentage of revenue, selling, general and
administrative expense was 15% for the second quarter of 1997 and 16% for the
first half of 1997 as compared to 16% and 17%, respectively, for the comparable
periods of 1996. The Company continues to actively pursue claims related to
its intellectual property rights and, as a result, legal expenses may continue
at a high level as this litigation progresses. See "Litigation" under
"Commitment and Contingencies" in Notes to Condensed Consolidated Financial
Statements for further discussion.
As noted previously, the Company recorded pretax gains included in Other income
(expense), net of $4.0 million and $31.5 million during the first and second
quarter of 1997, respectively, resulting from sales of stock received as part
of a litigation settlement in 1996.
Page 11 of 16
<PAGE> 12
The Company's estimated effective income tax rate was 38% for the first half of
1997. 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 in the United States and foreign jurisdictions. The effective tax rate
could change as estimates of these and other variables change throughout the
year. The Company believes that its existing deferred tax assets on the
Condensed Consolidated Balance Sheet will be realizable based on the Company's
profitable operating history and an assessment that the Company will generate
taxable earnings in domestic and foreign tax jurisdictions in the future.
The Company's future quarterly and annual operating results may be affected by
a number of factors, including the introduction and market acceptance of new
products on a timely basis as previously discussed; mix of products sold; the
timing and ultimate receipt of orders from certain customers which continue to
constitute a large portion of the Company's revenue; the successful enhancement
of existing products; product costs; manufacturing lead times; significant
fluctuations in foreign currency exchange rates; and changes in general
worldwide economic conditions, any of which could have an adverse impact on
operating results.
The Company continues to evaluate its computer software used internally and
also its external product offerings to determine to what extent modifications
will be required to ensure year 2000 compliance. It is not possible to
estimate the cost of compliance and its effect on the Company until the
evaluation process is completed.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share", ("FAS 128"). FAS
128 simplifies the standards for computing earnings per share and is effective
for financial statements for both interim and annual periods ending after
December 15, 1997. Earlier application is not permitted. The adoption of FAS
128 is not expected to have a significant impact on the Company's earnings per
share.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", ("FAS 131") which supersedes existing
accounting standards related to disclosure of operating segment information
beginning in 1998. The Company has yet to determine the impact of this new
standard on its financial statement disclosures for the 1998 annual financial
statements.
Page 12 of 16
<PAGE> 13
Financial Condition and Liquidity
The Company's cash and cash equivalents at June 30, 1997 were $148.4 million
compared to $155.1 million at December 31, 1996, and marketable securities were
$148.8 million at June 30, 1997 compared to $178.9 million at December 31,
1996.
Cash of $64.6 million was generated from operating activities in the first half
of 1997. This was primarily the result of improved earnings and a decrease in
accounts receivable, partially offset by an increase in inventories as a result
of existing and anticipated customer demand for the Company's products.
Investing activities during the six months ended June 30, 1997 included
additions to property and equipment of $77.9 million. The Company anticipates
that capital expenditures for the full year 1997 could be in the range of $150
million to $170 million. Capital expenditures in 1998, which may include
expansion of facilities on the Plano campus, could equal or exceed amounts of
capital expenditures in 1997. However, the timing and extent of any future
capital expenditures is dependent upon future business growth.
The Company received proceeds of approximately $35.5 million in the first half
of 1997 from the sales of common stock received as part of a litigation
settlement in 1996.
In April 1997, the Company made a scheduled annual principal payment of $28.1
million on the $225 million loan entered into during 1995.
As discussed in "Credit Agreements and Short-Term Borrowings" in Notes to
Condensed Consolidated Financial Statements, the Company has an unsecured
$160.0 million revolving credit agreement. The Company had no borrowings under
this credit facility in the first half of 1997. Outstanding letters of credit,
which totaled $7.4 million at June 30, 1997, reduce the amount of available
borrowings. Two of the Company's foreign subsidiaries also have credit
agreements providing for borrowings of up to $13.7 million with local banks, of
which $5.3 million was outstanding at June 30, 1997.
The Company is party to certain litigation, as disclosed in "Litigation" under
"Commitment and Contingencies" in Notes to Condensed Consolidated Financial
Statements, the outcome of which the Company believes will not have a material
adverse effect on its consolidated financial position. As discussed in Notes
to Condensed Consolidated Financial Statements, a federal district court
entered a $137.7 million judgment in the Company's favor associated with the
Next Level litigation. On February 28, 1997, the Fifth Circuit Court of
Appeals upheld the judgment. The Company and Next Level appealed to an En Banc
panel of judges in the Fifth Circuit. Both appeals were denied, and the case
has been remanded to the federal district court for entry of judgment. In the
absence of any further appeals, the Company believes that it should receive the
proceeds in the second half of 1997.
Page 13 of 16
<PAGE> 14
The Company believes that its existing cash and short-term investments and
credit facilities and, to the extent necessary, available financing
alternatives will be adequate to support the Company's financial resource
needs, including working capital requirements, capital expenditures, operating
lease obligations and debt payments. In order to be competitive in the future,
the Company believes that it will become increasingly necessary to offer
financing alternatives to both domestic and international customers. To the
extent such financing becomes significant or other business requirements arise,
additional financing could become necessary.
Page 14 of 16
<PAGE> 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
A. Exhibits.
11. Computation of Income Per Share.
27. Financial Data Schedule (for EDGAR filing purposes only).
B. Reports on Form 8-K.
No reports on Form 8-K have been filed during the three months ended
June 30, 1997.
Page 15 of 16
<PAGE> 16
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: August 1, 1997 By: /s/ Kenneth R. Vines
--------------------
Kenneth R. Vines
Vice President, Finance,
duly authorized officer
and principal accounting
officer
Page 16 of 16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>
11 Computation of Income Per Share
27 Financial Data Schedule
</TABLE>
<PAGE> 1
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 and six months ended
June 30, 1997 and 1996.
Average Shares Used in Income per Share Calculation:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
1997 1996 1997 1996
------- ------- -------- -------
<S> <C> <C> <C> <C>
Weighted average
shares outstanding
during the period.............. 117,363 116,040 117,344 115,927
Common share equivalents
outstanding:
Options and warrants
issued and
contingently issuable........ 5,735 3,843 5,710 3,915
Assumed purchase of
treasury shares.............. (3,797) (1,390) (3,813) (1,400)
------- ------ ------- -------
Weighted average shares
used in calculation............ 119,301 118,493 119,241 118,442
======= ======= ======= =======
</TABLE>
Fully diluted income per share is not shown since the dilutive effect is less
than three percent for the three and six months ended June 30, 1997 and 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 148,356
<SECURITIES> 148,781
<RECEIVABLES> 389,733
<ALLOWANCES> 0
<INVENTORY> 369,137
<CURRENT-ASSETS> 1,183,178
<PP&E> 824,199
<DEPRECIATION> 396,658
<TOTAL-ASSETS> 1,950,571
<CURRENT-LIABILITIES> 441,033
<BONDS> 235,028
0
0
<COMMON> 1,224
<OTHER-SE> 1,202,382
<TOTAL-LIABILITY-AND-EQUITY> 1,950,571
<SALES> 729,086
<TOTAL-REVENUES> 729,086
<CGS> 433,255
<TOTAL-COSTS> 433,255
<OTHER-EXPENSES> 119,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,812
<INCOME-PRETAX> 93,834
<INCOME-TAX> 35,657
<INCOME-CONTINUING> 35,657
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,177
<EPS-PRIMARY> .49
<EPS-DILUTED> 0
</TABLE>
