<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 DECEMBER 30, 1994
-------------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXHANGE 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 27, 1995, SCIENTIFIC-ATLANTA, INC. HAD OUTSTANDING 76,287,772
SHARES OF COMMON STOCK.
1 of 12
<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 Six Months Ended
--------------------------------- ---------------------------------
December 30, December 31, December 30, December 31,
1994 1993 1994 1993
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
SALES $277,393 $ 178,033 $ 509,694 $348,325
-------- --------- --------- --------
COSTS AND EXPENSES
Cost of sales 202,058 124,795 364,494 245,495
Sales and administrative 34,690 28,770 67,838 56,279
Research and development 20,235 14,488 39,762 26,778
Interest expense 190 416 418 668
Interest (income) (617) (756) (1,503) (1,597)
Other (income) expense, net (1,241) 17,057 (1,201) 16,924
-------- --------- --------- --------
Total costs and expenses 255,315 184,770 469,808 344,547
-------- --------- --------- --------
EARNINGS (LOSS) BEFORE
INCOME TAXES 22,078 (6,737) 39,886 3,778
PROVISION FOR INCOME TAXES
Current 8,784 (1,232) 15,248 2,920
Deferred (1,719) (924) (2,484) (1,711)
-------- --------- --------- --------
NET EARNINGS (LOSS) $ 15,013 $ (4,581) $ 27,122 $ 2,569
======== ========= ========= ========
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
PRIMARY $ 0.19 $ (0.06) $ 0.35 $ 0.03
======== ========= ========= ========
FULLY DILUTED $ 0.19 $ (0.06) $ 0.35 $ 0.03
======== ========= ========= ========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
PRIMARY 78,231 77,196 77,923 77,165
======== ========= ========= ========
FULLY DILUTED 78,251 77,196 78,032 77,226
======== ========= ========= ========
DIVIDENDS PER SHARE PAID $ 0.03 $0.01 1/2 $ 0.03 $ 0.03
======== ========= ========= ========
</TABLE>
SEE ACCOMPANYING NOTES
2 of 12
<PAGE> 3
SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
In Thousands
------------------------------------
December 30, July 1,
1994 1994
------------ ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 69,100 $ 123,387
Receivables, less allowance for doubtful
accounts of $4,066,000 at December 30
and $3,839,000 at July 1 229,652 206,145
Inventories 195,129 136,813
Deferred income taxes 30,609 27,918
Other current assets 9,342 10,774
---------- ---------
TOTAL CURRENT ASSETS 533,832 505,037
---------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and improvements 7,238 3,823
Buildings and improvements 31,716 28,890
Machinery and equipment 128,430 108,585
---------- ---------
167,384 141,298
Less-Accumulated depreciation and amortization 65,059 55,510
---------- ---------
102,325 85,788
---------- ---------
COST IN EXCESS OF NET ASSETS ACQUIRED 7,314 7,689
---------- ---------
OTHER ASSETS 41,335 41,705
---------- ---------
TOTAL ASSETS $ 684,806 $ 640,219
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current maturities of
long-term debt $ 6,572 $ 6,487
Accounts payable 102,584 82,285
Accrued liabilities 91,567 95,505
Income taxes currently payable 14,189 17,989
---------- ---------
TOTAL CURRENT LIABILITIES 214,912 202,266
---------- ---------
LONG-TERM DEBT, less current maturities 1,057 1,088
---------- ---------
OTHER LIABILITIES 39,265 41,219
---------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 50,000,000 shares;
no shares issued -- --
Common stock, $0.50 par value, authorized
350,000,000 shares; issued 76,257,545 at
December 30 and 75,494,670 shares at July 1 38,129 37,747
Additional paid-in capital 149,898 141,179
Retained earnings 240,721 215,926
Accumulated translation adjustments 824 794
---------- ---------
429,572 395,646
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 684,806 $ 640,219
========== =========
</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>
Six Months Ended
----------------
December 30, December 31,
1994 1993
------------ ------------
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: $ (28,935) $ 16,268
--------- ---------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (27,638) (13,597)
Proceeds from sale of investment in joint venture 4,214 --
Other, net (3,461) (909)
--------- ---------
Net cash used by investing activities (26,885) (14,506)
--------- ---------
FINANCING ACTIVITIES:
Net short-term borrowings 86 727
Principal payments on long-term debt (32) (27)
Dividends paid (2,278) (2,239)
Issuance of common stock 3,757 2,759
--------- ---------
Net cash provided by financing activities 1,533 1,220
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (54,287) 2,982
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 123,387 103,536
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 69,100 $ 106,518
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 438 $ 605
========= =========
Income taxes paid, net $ 17,082 $ 5,087
========= =========
</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 1994 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 30, 1994, and December 31, 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:
<TABLE>
<CAPTION>
December 30, July 1,
1994 1994
------------ --------
(Unaudited)
<S> <C> <C>
Raw materials and work-in-process $128,289 $ 94,890
Finished goods 66,840 41,923
-------- --------
Total inventory $195,129 $136,813
======== ========
</TABLE>
D. All share amounts have been restated to reflect the 2-for-1
stock split effected as a dividend issued on October 6, 1994.
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<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Scientific-Atlanta had stockholders' equity of $429.6 million and
cash on hand was $69.1 million at December 30, 1994. Cash decreased $54.3
million during the six months ended December 30, 1994, as expenditures for
inventories, equipment and expansion of manufacturing capacity, including the
construction of a manufacturing facility in Juarez, Mexico, exceeded cash
generated from earnings. The current ratio of 2.5:1 at December 30, 1994, was
unchanged from July 1, 1994. At December 30, 1994, total debt was $7.6
million or less than 2 percent of total capital invested. Short-term
debt consists of borrowings by the company's international operations to
support their working capital requirements.
The company is in the process of securing a long-term debt
facility to provide funds to supplement those generated internally to
support growth and planned expansion of manufacturing capacity. The company
believes it will use a portion of the long-term debt facility prior to the
end of the fiscal year.
RESULTS OF OPERATIONS
Sales for the quarter ended December 30, 1994, were $277.4 million,
up 56% from the prior year's sales of $178.0 million. Sales for the six
months ended December 30, 1994, were $509.7 million, up 46% over the
comparable period of the prior year. During the three and six months ended
December 30, 1994, strong growth in sales of transmission and addressable
converter products and deliveries of satellite equipment to Orbit
Communications Company for its direct to home satellite services contributed to
the year- to-year increases in sales. Sales of instrumentation products
continue to be adversely affected by spending reductions in the defense
industry.
Gross margins of 27.2 percent and 28.5 percent for the three and six
months ended December 30, 1994, respectively, declined 2.7 and 1.0 percentage
points from the comparable periods of the prior year. Gains from cost
improvements in satellite networks and increased volumes in transmission and
addressable converter products were offset by unfavorable exchange rate
changes in Japanese yen, production startup costs, product mix and costs
associated with capacity expansion. The company believes that gross margins
will be negatively impacted in future periods by planned expansion of
manufacturing capacity and the continued increase in sales of addressable
converter products which have lower margins than some of the company's other
products. Continued strength of the yen would also adversely affect gross
margins.
Certain material purchases are denominated in Japanese yen and,
accordingly, the purchase price in U.S. dollars is subject to change based on
exchange rate fluctuations. Currently, the company has forward exchange
contracts to purchase yen to hedge its purchase commitments for a period of
approximately three months.
Research and development costs increased $5.7 million, or 40
percent, and $13.0 million, or 48 percent, for the three and six months
ended December 30, 1994, respectively, over the comparable periods of the
prior year due to increased research and development activity, particularly
development of digital products. The company anticipates that spending during
the second half of fiscal 1995 will continue to increase over the prior year at
approximately the same rate as the first half of fiscal 1995.
Selling and administrative expense increased 21 percent from the
prior year. Increased expenses reflect costs associated with ongoing
investments to support expansion into international markets, the introduction
of new products and a build-up in the infrastructure to handle the growth the
company is experiencing.
Other income of $1.2 million for the quarter ended December 30,
1994, included net gains of $0.6 million from partnership activities and net
gains of $0.6 million from foreign currency transactions, rental income and
other miscellaneous items. Other income of $1.2 million for the six
months ended December 31, 1994, included net gains of $0.3 million from
foreign currency transactions, $0.3 million of rental
6 of 12
<PAGE> 7
income and net gains of $0.6 million from royalty income, partnership
activities and other miscellaneous items. Other expense of $16.9 million for
the six months ended December 31, 1993, included a one-time charge of $17.5
million related to the settlement of securities class action litigation and
rental income, gains from the sale of certain assets, and other miscellenaous
items of $0.6 million. The litigation settlement was the only significant
item in other expense during the quarter ended December 31, 1993.
The company's effective income tax rate was 32 percent for the quarter
unchanged from the prior year.
Net earnings were $15.0 million and $27.1 million, respectively, for
the three and six months ended December 30, 1994. Net earnings, before
including the effect of the one-time charge for the legal settlement,
were $7.3 million and $14.5 million, respectively, for the comparable
periods of the prior year. Higher sales volume was the primary factor in
the period-to-period increases.
7 of 12
<PAGE> 8
PART II - OTHER INFORMATION
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 held on
November 11, 1994.
(b) Election of directors:
<TABLE>
<CAPTION>
Votes For Withhold Authority
--------- ------------------
<S> <C> <C>
David J. McLaughlin 62,957,494 261,940
James V. Napier 62,980,176 239,258
Sidney Topol 62,950,059 269,375
</TABLE>
Marion H. Antonini, William E. Kassling, Wilbur B. King, Mylle Bell
Mangum, Alonzo L. McDonald and James F. McDonald continue as directors.
(c) (i) Approval of Long-Term Incentive Plan
<TABLE>
<CAPTION>
Votes For Votes Against Abstain
--------- ------------- -------
<S> <C> <C>
36,099,625 20,772,354 323,120
</TABLE>
(ii) Approval of Senior Officer Annual Incentive Plan
<TABLE>
<CAPTION>
Votes For Votes Against Abstain
--------- ------------- -------
<S> <C> <C>
52,170,302 10,326,620 373,433
</TABLE>
(iii) Selection of Arthur Andersen LLP as independent
auditors
<TABLE>
<CAPTION>
Votes For Votes Against Abstain
--------- ------------- -------
<S> <C> <C>
62,987,850 112,924 118,660
</TABLE>
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.1 Long-Term Incentive Plan (incorporated by reference
to corresponding exhibit to the proxy statement
filed on 10-3-94, except for the change noted on the
attached cover page)
10.2 Senior Officer Annual Incentive Plan (incorporated
by reference to corresponding exhibit to the proxy
statement filed on 10-3-94, except for the change
noted on the attached cover page)
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use only)
</TABLE>
(b) No reports on Form 8-K were filed during the quarter ended
December 30, 1994.
8 of 12
<PAGE> 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 10, 1995 /s/ Harvey A. Wagner
----------------- ------------------------------------------------
Harvey A. Wagner
Senior Vice President, Finance
Chief Financial Officer and Treasurer
(Principal Financial Officer and duly authorized
signatory of the Registrant)
9 of 12
<PAGE> 1
Exhibit 10.1
LONG TERM INCENTIVE PLAN
OF
SCIENTIFIC-ATLANTA, INC.
As adopted by the Board of Director on
August 25, 1994
and by the stockholders on
November 11, 1994
10 of 12
<PAGE> 1
Exhibit 10.2
SCIENTIFIC-ATLANTA, INC
SENIOR OFFICER ANNUAL INCENTIVE PLAN
As adopted by the Board of Directors on
June 22, 1994
and by the stockholders on
November 11, 1994
11 of 12
<PAGE> 1
Exhibit 11
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
EXHIBIT 11
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
December 30, December 31, December 30, December 31,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 76,019 74,848 75,800 74,698
Add - Additional shares of common stock assumed
issued upon exercise of options using the "treasury stock"
method as it applies to the computation of primary
earnings per share 2,212 2,348 2,123 2,467
------- ------- ------- -------
NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 78,231 77,196 77,923 77,165
Add - Additional shares of common stock assumed
issued upon exercise of options using the "treasury
stock" method as it applies to the computation of
fully diluted earnings per share 20 -- 109 61
------- ------- ------- -------
NUMBER OF SHARES OUTSTANDING
ASSUMING FULL DILUTION 78,251 77,196 78,032 77,226
======= ======= ======= =======
NET EARNINGS (LOSS) FOR PRIMARY
AND FULLY DILUTED COMPUTATION $15,013 $(4,581) $27,122 $ 2,569
======= ======= ======= =======
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
PRIMARY $ 0.19 $ (0.06) $ 0.35 $ 0.03
======= ======= ======= =======
FULLY DILUTED $ 0.19 $ (0.06) $ 0.35 $ 0.03
======= ======= ======= =======
</TABLE>
12 of 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM 10-Q FOR THE
SIX MONTHS ENDED DECEMBER 30, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-02-1994
<PERIOD-END> DEC-30-1994
<CASH> 69,100
<SECURITIES> 0
<RECEIVABLES> 233,718
<ALLOWANCES> 4,066
<INVENTORY> 195,129
<CURRENT-ASSETS> 533,832
<PP&E> 167,384
<DEPRECIATION> 65,059
<TOTAL-ASSETS> 684,806
<CURRENT-LIABILITIES> 214,912
<BONDS> 1,057
<COMMON> 38,129
0
0
<OTHER-SE> 391,443
<TOTAL-LIABILITY-AND-EQUITY> 684,806
<SALES> 509,694
<TOTAL-REVENUES> 509,694
<CGS> 364,494
<TOTAL-COSTS> 364,494
<OTHER-EXPENSES> 39,762
<LOSS-PROVISION> 487
<INTEREST-EXPENSE> 418
<INCOME-PRETAX> 39,886
<INCOME-TAX> 12,764
<INCOME-CONTINUING> 27,122
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,122
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.35
</TABLE>
