<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 March 31, 1995
-----------------------
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 April 28, 1995, Scientific-Atlanta, Inc. had outstanding 76,740,668
shares of common stock.
<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
------------------------- ---------------------------
March 31, April 1, March 31, April 1,
1995 1994 1995 1994
---------- ------- --------- --------
<S> <C> <C> <C> <C>
SALES $ 313,510 $204,047 $ 823,204 $ 552,372
---------- ------- -------- --------
COSTS AND EXPENSES
Cost of sales 230,489 140,660 594,983 386,155
Sales and administrative 37,806 29,031 105,644 85,310
Research and development 22,859 17,164 62,621 43,942
Interest expense 165 230 583 898
Interest (income) (466) (661) (1,969) (2,258)
Other (income) expense, net (387) 113 (1,588) 17,037
---------- ------- -------- --------
Total costs and expenses 290,466 186,537 760,274 531,084
---------- ------- -------- --------
EARNINGS BEFORE
INCOME TAXES 23,044 17,510 62,930 21,288
PROVISION FOR INCOME TAXES
Current 5,349 5,999 20,597 8,919
Deferred 2,024 (396) (460) (2,107)
---------- ------- -------- --------
NET EARNINGS $ 15,671 $ 11,907 $ 42,793 $ 14,476
========== ======= ======== ========
EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
PRIMARY $ 0.21 $ 0.16 $ 0.56 $ 0.19
========== ======= ======== ========
FULLY DILUTED $ 0.21 $ 0.15 $ 0.56 $ 0.19
========== ======= ======== ========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES AND COMMON
EQUIVALENT SHARES OUTSTANDING
PRIMARY 76,403 77,120 76,001 77,136
========== ======= ======== ========
FULLY DILUTED 76,403 77,143 76,001 77,158
========== ======= ======== ========
DIVIDENDS PER SHARE PAID $ 0.015 $ 0.015 $ 0.045 $ 0.045
========== ======= ======== ========
</TABLE>
SEE ACCOMPANYING NOTES
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SCIENTIFIC-ATLANTA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
<TABLE>
<CAPTION>
In Thousands
------------------------------------
March 31, July 1,
1995 1994
--------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 60,408 $ 123,387
Receivables, less allowance for doubtful
accounts of $4,197,000 at March 31
and $3,839,000 at July 1 247,772 206,145
Inventories 226,611 136,813
Deferred income taxes 29,711 27,918
Other current assets 9,130 10,774
--------- --------
TOTAL CURRENT ASSETS 573,632 505,037
--------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and improvements 7,566 3,823
Buildings and improvements 35,093 28,890
Machinery and equipment 140,909 108,585
--------- --------
183,568 141,298
Less-Accumulated depreciation and amortization
70,687 55,510
--------- --------
112,881 85,788
--------- --------
COST IN EXCESS OF NET ASSETS ACQUIRED 7,127 7,689
--------- --------
OTHER ASSETS 38,514 41,705
--------- --------
TOTAL ASSETS $ 732,154 $ 640,219
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current maturities of
long-term debt $ 2,026 $ 6,487
Accounts payable 131,342 82,285
Accrued liabilities 101,037 95,505
Income taxes currently payable 9,340 17,989
--------- --------
TOTAL CURRENT LIABILITIES 243,745 202,266
--------- --------
LONG-TERM DEBT, less current maturities 1,040 1,088
--------- --------
OTHER LIABILITIES 36,731 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 76,689,864 at
March 31 and 75,494,670 shares at July 1 38,345 37,747
Additional paid-in capital 156,688 141,179
Retained earnings 255,243 215,926
Accumulated translation adjustments 362 794
-------- --------
450,638 395,646
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 732,154 $ 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>
Nine Months Ended
------------------------------------
March 31, April 1,
1995 1994
------------ ------------
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: $ (16,744) $ 15,336
------- -------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (45,299) (23,691)
Proceeds from sale of investment in joint venture 4,214 --
Proceeds from sale of investment in ICT -- 11,174
Investments in joint ventures (2,560) (4,240)
Other, net (1,573) 394
------- --------
Net cash used by investing activities (45,218) (16,363)
------- -------
FINANCING ACTIVITIES:
Net short-term borrowings (4,461) 1,395
Principal payments on long-term debt (48) (241)
Dividends paid (3,427) (3,366)
Issuance of common stock 6,919 4,300
------- -------
Net cash provided (used) by financing activities (1,017) 2,088
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (62,979) 1,061
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 123,387 103,536
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 60,408 $104,597
======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 792 $ 807
======= =======
Income taxes paid, net $ 25,321 $ 5,208
======= =======
</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 nine months ended March 31,
1995, has been computed based on the weighted average number of
shares of common stock outstanding during each period. Earnings
per share for the three and nine months ended April 1, 1994 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>
March 31, July 1,
1995 1994
-------- -------
(Unaudited)
<S> <C> <C>
Raw materials and work-in-process $ 140,978 $ 94,890
Finished goods 85,633 41,923
-------- -------
Total inventory $ 226,611 $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 $450.6 million and cash
on hand was $60.4 million at March 31, 1995. Cash decreased $63.0 million
during the nine months ended March 31, 1995, 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 2.4:1 at March 31, 1995, compared to 2.5:1 at
July 1, 1994. At March 31, 1995, total debt was $3.1 million or less than 1
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 the growth of
the company and the planned expansion of manufacturing capacity. The company
does not believe it will use any of the long-term debt facility prior to the
end of the fiscal year.
RESULTS OF OPERATIONS
Sales for the quarter ended March 31, 1995, were $313.5 million, up 54
percent from the prior year's sales of $204.0 million. Sales for the nine
months ended March 31, 1995, were $823.2 million, up 49 percent over the
comparable period of the prior year. During the three and nine months ended
March 31, 1995, 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 26.5 percent and 27.7 percent for the three and nine
months ended March 31, 1995, respectively, declined 4.6 and 2.4 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 overruns on
defense contracts. The company believes that gross margins may be negatively
impacted in future periods by planned expansion of manufacturing capacity and
the continued increase in sales of addressable converter products and Sega
adapters 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 five months.
Research and development costs increased $5.7 million, or 33 percent,
and $18.7 million, or 43 percent, for the three and nine months ended March 31,
1995, 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 last
quarter of fiscal 1995 will continue to increase over the prior year at
approximately the same rate as the first three quarters of fiscal 1995.
Selling and administrative expense during the three and nine months
ended March 31, 1995, increased 30 percent and 24 percent, respectively, over
the comparable periods of 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
of the company to handle the growth the company is experiencing.
Other income of $1.6 million for the nine months ended March 31, 1995,
included net gains from partnership activities, rental income, royalty income
and other miscellaneous items. 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
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<PAGE> 7
assets, and other miscellaneous items of $0.5 million. There were no
significant items in other income and expense during the third quarter of
fiscal 1995 or 1994.
The company's effective income tax rate was 32 percent for the quarter,
unchanged from the prior year.
Net earnings were $15.7 million and $42.8 million, respectively, for
the three and nine months ended March 31 1995. Net earnings, before including
the effect of the one-time charge for the legal settlement in the second
quarter of fiscal 1994, were $11.9 million and $26.4 million, respectively, for
the comparable periods of the prior year. Higher sales volume was the primary
factor in the period-to-period 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
----------- -----------
[S] [C]
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use
only)
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1995.
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<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: May 5, 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)
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<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 Nine Months Ended
------------------------------ ----------------------------
March 31, April 1, March 31, April 1,
1995(1) 1994 1995(1) 1994
------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 76,403 75,172 76,001 74,856
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 -- 1,948 -- 2,280
------- -------- ------- --------
NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 76,403 77,120 76,001 77,136
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 -- 23 -- 22
------- -------- ------- --------
NUMBER OF SHARES OUTSTANDING
ASSUMING FULL DILUTION 76,403 77,143 76,001 77,158
======= ======== ======= ========
NET EARNINGS FOR PRIMARY
AND FULLY DILUTED COMPUTATION $ 15,671 $ 11,907 $ 42,793 $ 14,476
======= ======== ======= ========
EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
PRIMARY $ 0.21 $ 0.16 $ 0.56 $ 0.19
======= ======== ======= ========
FULLY DILUTED $ 0.21 $ 0.15 $ 0.56 $ 0.19
======= ======== ======= ========
</TABLE>
- -----------------------------
(1) In the three and nine months ended March 31, 1995, the dilutive effect of
equivalent shares derived from dilutive stock options was less than 3
percent and, therefore, the equivalent shares have not been included in the
computation of earnings per share.
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE NINE MONTHS ENDED MARCH 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-02-1994
<PERIOD-END> MAR-31-1995
<CASH> 60,408
<SECURITIES> 0
<RECEIVABLES> 251,969
<ALLOWANCES> 4,197
<INVENTORY> 226,611
<CURRENT-ASSETS> 573,632
<PP&E> 183,568
<DEPRECIATION> 70,687
<TOTAL-ASSETS> 732,154
<CURRENT-LIABILITIES> 243,745
<BONDS> 1,040
<COMMON> 38,345
0
0
<OTHER-SE> 412,293
<TOTAL-LIABILITY-AND-EQUITY> 732,154
<SALES> 823,204
<TOTAL-REVENUES> 823,204
<CGS> 594,983
<TOTAL-COSTS> 594,983
<OTHER-EXPENSES> 62,621
<LOSS-PROVISION> 673
<INTEREST-EXPENSE> 583
<INCOME-PRETAX> 62,930
<INCOME-TAX> 20,137
<INCOME-CONTINUING> 42,793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,793
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
</TABLE>
