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<PAGE> 1
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 APRIL 1, 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 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 APRIL 29, 1994, SCIENTIFIC-ATLANTA, INC. HAD OUTSTANDING 37,672,190
SHARES OF COMMON STOCK.
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<PAGE> 2
PART I - FINANCIAL INFORMATION
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- --------------------------------
April 1, April 2, April 1, April 2,
1994 1993 1994 1993
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
SALES $ 204,047 $ 184,138 $ 552,372 $ 541,985
---------- --------- --------- ----------
COSTS AND EXPENSES
Cost of sales 140,660 131,200 386,155 396,959
Sales and administrative 29,031 28,350 85,310 82,208
Research and development 17,164 15,950 43,942 45,184
Interest expense 230 206 898 617
Interest (income) (661) (596) (2,258) (2,217)
Other (income) expense, net 113 (202) 17,037 (949)
---------- --------- --------- ----------
Total costs and expenses 186,537 174,908 531,084 521,802
---------- --------- --------- ----------
EARNINGS BEFORE INCOME TAXES
AND ACCOUNTING CHANGES 17,510 9,230 21,288 20,183
PROVISION FOR INCOME TAXES
Current 5,999 2,368 8,919 5,738
Deferred (396) (60) (2,107) (692)
---------- --------- --------- ----------
EARNINGS BEFORE
ACCOUNTING CHANGES 11,907 6,922 14,476 15,137
Cumulative effect of changes for post-
retirement benefits, postemployment
benefits and income taxes -- -- -- (4,700)
---------- --------- --------- ----------
NET EARNINGS $ 11,907 $ 6,922 $ 14,476 $ 10,437
========== ======== ========= ==========
EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE
PRIMARY
Before accounting changes $ 0.31 $ 0.18 $ 0.38 $ 0.41
Accounting changes -- -- -- (0.13)
---------- -------- --------- ----------
Net earnings $ 0.31 $ 0.18 $ 0.38 $ 0.28
========== ======== ========= ==========
FULLY DILUTED $ 0.31 $ 0.18 $ 0.38 $ 0.28
========== ======== ========= ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
PRIMARY 38,560 38,061 38,568 37,286
========== ======== ========= ==========
FULLY DILUTED 38,571 38,061 38,579 37,372
========== ======== ========= ==========
DIVIDENDS PER SHARE PAID $ 0.03 $ 0.03 $ 0.09 $ 0.08 2/3
========== ======== ========= ==========
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 3
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
In Thousands
-----------------------------------------
April 1, July 2,
1994 1993
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 104,597 $ 103,536
Receivables, less allowance for doubtful
accounts of $4,231,000 at April 1
and $4,224,000 at July 2 173,101 150,851
Inventories 132,823 127,408
Deferred income taxes and taxes recoverable 25,310 23,919
---------- ---------
TOTAL CURRENT ASSETS 435,831 405,714
---------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and improvements 3,730 3,658
Buildings and improvements 27,238 26,721
Machinery and equipment 110,750 92,066
---------- ---------
141,718 122,445
Less Accumulated depreciation and amortization 60,607 50,813
---------- ---------
81,111 71,632
---------- ---------
COST IN EXCESS OF NET ASSETS ACQUIRED 7,876 8,438
---------- ---------
OTHER ASSETS 56,208 38,426
---------- ---------
TOTAL ASSETS $ 581,026 $ 524,210
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current maturities of
long-term debt $ 7,360 $ 5,962
Accounts payable 55,106 47,224
Accrued liabilities 102,157 76,850
---------- ---------
TOTAL CURRENT LIABILITIES 164,623 130,036
---------- ---------
LONG-TERM DEBT, less current maturities 1,154 1,398
---------- ---------
OTHER LIABILITIES 41,148 39,886
---------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 50,000,000 shares;
no shares issued -- --
Common stock, $0.50 par value, authorized
350,000,000 shares; issued 37,665,422
shares at April 1 and 37,196,194 at July 2 18,833 18,598
Additional paid-in capital 138,982 129,072
Retained earnings 215,384 204,274
Accumulated translation adjustments 902 946
---------- --------
374,101 352,890
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 581,026 $524,210
========== ========
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 4
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
April 1, April 2,
1994 1993
--------- ---------
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 15,336 $ (3,933)
--------- ---------
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (23,691) (16,621)
Proceeds from sale of property, plant and equipment 394 2,286
Proceeds from sale of investment in ICT 11,174 --
Payment for business purchased -- (5,998)
Investments in joint ventures (4,240) --
--------- ---------
Net cash used by investing activities (16,363) (20,333)
--------- ---------
FINANCING ACTIVITIES
Net short-term borrowings 1,395 4,296
Principal payments on long-term debt (241) (239)
Dividends paid (3,366) (3,134)
Issuance of common stock 4,300 22,955
--------- ---------
Net cash provided by financing activities 2,088 23,878
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,061 (388)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 103,536 90,888
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 104,597 $ 90,500
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 807 $ 600
========= =========
Income taxes paid, net $ 5,208 $ 4,752
========= =========
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 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 nine months ended April 1, 1994 and
April 2, 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:
April 1, July 2,
1994 1993
------------ ----------
Raw materials and work-in-process $ 94,784 $ 71,780
Finished goods 38,039 55,628
------------ ----------
Total Inventory $ 132,823 $ 127,408
============ ==========
D. Sales of utility load management products and measurement and control
systems have been reclassified to the Communications segment from the
Instrumentation segment for the quarter ended April 1, 1994. Previously
reported sales for the six months ended December 31, 1993 and the three
and nine months ended April 2, 1993 have been restated to reflect this
reclassification.
E. Other expense for the nine months ended April 1, 1994 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 was paid to the members of the plaintiff class and the
remainder is costs incurred by the company in connection with the suit.
F. 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 nine months ended April
2, 1993.
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<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Scientific-Atlanta had shareholders equity of $374.1 million and cash
on hand was $104.6 million at April 1, 1994. Cash generated from operating
activities and the sale of an investment in ICT was used for capital
expenditures and the settlement of securities class action litigation. The
current ratio of 2.6:1 at April 1, 1994, was down slightly from 3.1:1 at July
2, 1993 due primarily to an increase in accrued liabilities from higher
customer downpayments. At April 1, 1994, total debt was $8.5 million or 2
percent of total capital invested. Short-term debt consists of working
capital borrowings to support operations of foreign subsidiaries.
RESULTS OF OPERATIONS
Sales for the quarter ended April 1, 1994 were $204.0 million, as
compared to $184.1 million for the same quarter a year ago. Within the
Communications sector, continued strong sales growth in cable television
distribution equipment and addressable home communications terminals
(converters) and significant improvement in sales of network systems were
offset partially by reduced sales due to completion of the Prime Star
television contract and lower digital audio sales. Sales of instrumentation
equipment declined during the quarter due to lower sales of defense related
products.
The customer base, marketing strategies, technology to support new
product development and manufacturing processes for utility load management
products and measurement and control systems have recently become more
closely aligned with those of the Communications segment and, accordingly,
management and operations which support these products and services have been
moved into the Communications segment. Sales of these products and systems
have been reclassified to the Communications segment from the Instrumentation
segment for the three months ended April 1, 1994. Previously reported sales
for the six months ended December 31, 1993 and the three and nine months
ended April 2, 1993 have been restated to reflect this reclassification.
Year-to-year increases in sales of utility load management products and
measurement and control systems are not material to either segment.
<TABLE>
<CAPTION>
Quarter Year-to-Date
----------------------------------- -------------------------------
% Increase % Increase
(Decrease) (Decrease)
% of from % of from
Amount Total Prior Year Amount Total Prior Year
------ ----- ---------- ------ ------ ----------
($ Millions)
<S> <C> <C> <C> <C> <C> <C>
Communications $179.5 88% 13 % $472.3 85 % 3 %
Instrumentation 24.5 12% (5)% 80.1 15 % (3)%
------ --- ------ ---
Consolidated $204.0 100% 11 % $ 52.4 100 % 2 %
====== === ====== ===
</TABLE>
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<PAGE> 7
Gross margins improved 2.4 and 3.3 percentage points over the comparable
three and nine month periods in the previous year. Manufacturing efficiencies,
increased volumes in distribution products and higher margins on 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.
Recently the exchange rate for Japanese yen has fallen close to a post-war
low. Certain material purchases are denominated in yen and, accordingly, the
purchase price in U.S. dollars is subject to change based on exchange rate
changes. The company has forward exchange contracts to purchase yen to hedge
its purchase commitments for a period of approximately five months.
Research and development costs during the three months ended April 1, 1994
increased 8 percent over the prior year due to accelerated research and
development activity, particularly, development of digital products. Research
and development costs during the nine months ended April 1, 1994 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 three and nine months ended April 1, 1994, selling and
administrative expenses increased over the comparable periods of the prior
year. Lower professional fees were offset by other increases in administrative
expenses. Sales and marketing expenses increased, reflecting costs associated
with ongoing investments to support expansion into international markets and
the introduction of new products.
Other expense of $17.0 million for the nine months ended April 1, 1994
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 $0.5 million. Other income of $0.9
million for the nine months ended April 2, 1993, included net gains from
investments of $0.1 million and royalty income, rental income, and other
miscellaneous items of $0.8 million. There were no significant items in other
income and expense during the third quarter of fiscal 1994 or 1993.
The company's effective tax rate was 32 percent for fiscal 1994 compared
to 25 percent the prior year. The lower provision in fiscal 1993 reflected
benefits from interest income on tax-exempt investments and benefits from
international tax planning.
Net earnings increased to $11.9 million for the three months ended April
1, 1994 from $6.9 million in the prior year. Net earnings for the nine months
ended April 1, 1994 were $14.5 million as compared to $10.4 million in the
prior year. Higher sales and improved margins were the primary factors in the
year-to-year increases.
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<PAGE> 8
PART II - OTHER INFORMATION
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
April 1, 1994.
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: May 12, 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)
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