<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 29, 1996
-------------------------------------------------
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)
770-903-5000
(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 26, 1996, SCIENTIFIC-ATLANTA, INC. HAD OUTSTANDING
76,746,101 SHARES OF COMMON STOCK.
1 of 9
<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 29, March 31, March 29, March 31,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES $271,883 $309,112 $775,176 $803,778
COSTS AND EXPENSES
Cost of sales 196,673 225,095 571,172 578,528
Sales and administrative 35,045 35,781 101,434 99,718
Research and development 24,028 22,717 70,666 61,819
Interest expense 206 165 573 583
Interest (income) (447) (466) (1,421) (1,969)
Other (income) expense, net (571) (421) 87 (1,609)
-------- -------- -------- --------
Total costs and expenses 254,934 282,871 742,511 737,070
EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 16,949 26,241 32,665 66,708
PROVISION (BENEFIT) FOR
INCOME TAXES
Current 5,448 6,372 20,777 21,807
Deferred (24) 2,024 (10,324) (460)
-------- -------- -------- --------
NET EARNINGS FROM CONTINUING
OPERATIONS 11,525 17,845 22,212 45,361
LOSS FROM DISCONTINUED
OPERATIONS, NET OF TAX -- (2,174) (1,038) (2,570)
ESTIMATED LOSS ON SALE OF
DISCONTINUED OPERATIONS,
NET OF TAX -- -- (12,172) --
-------- -------- -------- --------
NET EARNINGS $ 11,525 $ 15,671 $ 9,002 $ 42,791
======== ======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE
PRIMARY
CONTINUING OPERATIONS $ 0.15 $ 0.23 $ 0.29 $ 0.59
DISCONTINUED OPERATIONS -- (0.02) (0.17) (0.03)
-------- -------- -------- --------
NET EARNINGS $ 0.15 $ 0.21 $ 0.12 $ 0.56
======== ======== ======== ========
FULLY DILUTED $ 0.15 $ 0.21 $ 0.12 $ 0.56
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING
PRIMARY 76,464 76,403 76,621 76,001
======== ======== ======== ========
FULLY DILUTED 76,464 76,403 76,621 76,001
======== ======== ======== ========
DIVIDENDS PER SHARE PAID $ 0.015 $ 0.015 $ 0.045 $ 0.045
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 3
SCIENTIFIC-ATLANTA, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
In Thousands
------------------------------
March 29, June 30,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 29,064 $ 80,311
Receivables, less allowance for doubtful
accounts of $3,460,000 at March 29
and $3,823,000 at June 30 217,454 243,420
Inventories 226,476 257,427
Deferred income taxes 39,197 28,271
Other current assets 26,244 5,950
-------- --------
TOTAL CURRENT ASSETS 538,435 615,379
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost
Land and improvements 16,002 7,005
Buildings and improvements 36,955 36,847
Machinery and equipment 155,709 145,301
-------- --------
208,666 189,153
Less-Accumulated depreciation and amortization 66,602 64,539
-------- --------
142,064 124,614
-------- --------
COST IN EXCESS OF NET ASSETS ACQUIRED 6,378 6,940
-------- --------
OTHER ASSETS 41,580 38,331
-------- --------
TOTAL ASSETS $728,457 $785,264
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt and current maturities of long-term debt $ 2,175 $ 1,386
Accounts payable 88,051 148,260
Accrued liabilities 100,282 113,947
Income taxes currently payable 20,351 12,121
-------- --------
TOTAL CURRENT LIABILITIES 210,859 275,714
-------- --------
LONG-TERM DEBT, less current maturities 650 773
-------- --------
OTHER LIABILITIES 39,868 34,588
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock, authorized 50,000,000 shares;
no shares issued -- --
Common stock, $0.50 par value, authorized
350,000,000 shares; issued 77,255,528 shares at
March 29 and 76,950,029 shares at June 30 38,628 38,475
Additional paid-in capital 162,355 160,206
Retained earnings 280,395 274,840
Accumulated translation adjustments 1,306 668
-------- --------
482,684 474,189
-------- --------
Less - Treasury stock, at cost (548,384 shares) 5,604 --
-------- --------
477,080 474,189
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $728,457 $785,264
======== ========
</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 29, March 31,
1996 1995
-------- ---------
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES: $18,355 $(14,410)
------- --------
INVESTING ACTIVITIES:
Purchases of property, plant, and equipment (53,080) (44,865)
Proceeds from sale of property, plant and equipment 2,312 61
Increase in net assets of discontinued operations (2,459) (2,768)
Proceeds from sale of investment in joint venture -- 4,214
Other (4,321) (4,194)
------- --------
Net cash used by investing activities (57,548) (47,552)
------- --------
FINANCING ACTIVITIES:
Net short-term borrowings 789 (4,461)
Principal payments on long-term debt (123) (48)
Dividends paid (3,447) (3,427)
Issuance of common stock 3,138 6,919
Treasury shares acquired (12,411) --
------- --------
Net cash used by financing activities (12,054) (1,017)
------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (51,247) (62,979)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 80,311 123,387
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $29,064 $ 60,408
======= ========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid $ 567 $ 792
======= ========
Income taxes paid, net $ 5,057 $ 25,321
======= ========
</TABLE>
SEE ACCOMPANYING NOTES
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<PAGE> 5
NOTES:
(Amounts in thousands except share data).
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 1995 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
29,1996 and March 31, 1995 were computed based on the weighted average
number of shares of common stock outstanding. See Exhibit 11.
C. Inventories consist of the following:
<TABLE>
<CAPTION>
March 29, June 30,
1996 1995
-------- --------
<S> <C> <C>
Raw materials and work-in-process $116,014 $142,418
Finished goods 110,462 115,009
-------- --------
Total inventory $226,476 $257,427
======== ========
</TABLE>
D. During the quarter ended September 29, 1995, the company decided
to discontinue its defense-related businesses in San Diego, California
because these businesses are not aligned with the company's core
business strategies. The company anticipates that the sale of the net
assets of the defense-related businesses will be completed within one
year. A one-time charge of $12,172, net of a tax benefit of $5,728,
for the estimated loss on the sale of discontinued operations was
recorded in the quarter ended September 29, 1995. Sales and losses
from discontinued operations were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- --------------------
March 29, March 31, March 29, March 31,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $6,012 $ 4,398 $18,457 $19,426
Loss from discontinued
operations, net of tax $ -- $(2,174) $(1,038) $(2,570)
Tax benefit $ -- $ 1,023 $ 488 $ 1,208
</TABLE>
The net assets of the discontinued operations include inventory,
accounts receivable, machinery and equipment, accounts payable, and
accrued expenses and are included in other current assets in the
Consolidated Statement of Financial Position.
E. In October 1995, the company announced that it had adopted a
stock buyback program for the purchase of up to 5,000,000 shares of
its common stock. During the quarter ended December 29, 1995, the
company repurchased 1,010,000 shares at an aggregate cost of $12,411.
During fiscal 1996, the company reissued 461,616 shares under the
company's stock option plan, voluntary employee retirement and
investment plan, and employee stock purchase plan.
5 of 9
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Scientific-Atlanta had stockholders' equity of $477.1 million and cash on
hand was $29.1 million at March 29, 1996. Cash decreased $51.2 million during
the nine months ended March 29, 1996, as expenditures for equipment, expansion
of manufacturing capacity, purchase of land for future expansion, the
repurchase of 1,010,000 shares of the company's common stock and reductions in
payables exceeded cash generated from earnings, accounts receivable collections
and inventory reductions. The current ratio was 2.6:1 at March 29, 1996,
compared to 2.2:1 at June 30, 1995. At March 29, 1996, total debt was $2.8
million or less than 1 percent of total capital invested. Short-term debt
consists primarily of borrowings by the company's international operations to
support their working capital requirements. The company believes that funds
generated from operations, existing cash balances and its available senior
credit facility will be sufficient to support growth and planned expansion of
manufacturing capacity.
RESULTS OF OPERATIONS
Sales for the quarter ended March 29, 1996 were $271.9 million, down 12
percent from the prior year's sales of $309.1 million. Sales for the nine
months ended March 29, 1996 were $775.2 million, down 4 percent from the prior
year's sales of $803.8 million. Higher sales volumes of transmission products
and digital set-tops were offset by declines in most other Broadband product
lines. Sales of satellite systems during the quarter ended March 29, 1996 were
flat as compared to the prior year. Sales for the nine months ended March 29,
1996 were lower as compared to the prior year due to substantial completion of
deliveries of equipment to Orbit Communications Company for its direct to home
satellite services in fiscal 1995.
Sales in the three and nine months ended March 29, 1996 were negatively
impacted by reduced levels of orders from domestic cable operators and
telephone companies. The company believes that capital spending in
telecommunications markets has been affected as cable television operators and
telephone companies develop strategies to take advantage of provisions in the
recently enacted Telecommunications Act of 1996, and by the fact that many of
the products service providers wish to use in advanced communications networks
are still under development and not commercially available.
Gross margins for the quarter ended March 29, 1996 were 27.7 percent, up
0.5 percentage points from a year ago. Cost reduction efforts were offset
partially by unfavorable exchange rate changes in the Japanese yen. Gross
margins for the nine months ended March 26, 1996 were 26.3 percent, down 1.7
percentage points from the prior year. The unfavorable exchange rate changes
in the yen have resulted in a decline in gross margins of approximately $14.8
million, or 1.9 percentage points in the nine months ended March 29, 1996.
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. The company has forward exchange contracts to
purchase yen to hedge a portion of its exposure on purchase commitments for a
period of approximately twelve months.
Research and development costs were up $1.3 million, or 6 percent, and
$8.8 million, or 14 percent, respectively, for the three and nine months ended
March 29, 1996, respectively, over the comparable periods of the prior year due
to increased research and development activity, particularly development of
digital products and cable telephony products. The company anticipates that
spending on research and development will continue at approximately the same
level as the first nine months of fiscal 1996.
Selling and administrative expenses in the quarter and nine months ended
March 29, 1996 were flat compared to the prior year. Reduced selling expenses,
reflecting the lower sales volume in the third quarter, were offset partially
by higher administrative costs, primarily professional fees related to on-going
arbitration and litigation. In the nine months ended March 29, 1996, increased
selling expenses associated with ongoing investments to support expansion into
international markets and the introduction of new products were offset
partially by lower administrative expenses.
6 of 9
<PAGE> 7
In February 1996, the company announced it had filed a patent infringement
suit in U.S. District Court for the Northern District of Georgia against
StarSight Telecast, Inc. and Philips Electronics North America Corporation. In
the suit the company maintains that products manufactured and sold by or on
behalf of StarSight and Philips which receive StarSight's interactive
electronic program guide infringe at least three Scientific-Atlanta patents.
The suit seeks damages as well as an injunction against continued infringement.
Interactive electronic program guides provide television schedule information
which is regularly updated, and permit the viewer to search for, select and
record programs using a cursor on the remote control.
The company also reported that StarSight Telecast, Inc. previously
commenced an arbitration proceeding in April 1995 in California in which it
asserts that Scientific-Atlanta failed to comply with the terms of a License
and Technical Assistance Agreement between the two companies relating to the
StarSight program guide, and that Scientific-Atlanta made unauthorized use of
StarSight intellectual property to develop its own program guide.
Scientific-Atlanta has denied StarSight's allegations and is vigorously
defending the action.
Other income and expense for the three and nine months ended March 29,
1996 included a loss of $3.0 million from the settlement of yen-denominated
foreign exchange contracts, a gain of $3.3 million from the sale of land and a
building in San Diego County, California not required for current operations,
and other miscellaneous items including other foreign currency transactions,
partnership activities and rental income. There were no significant items in
other income and expense during the three and nine months ended March 31, 1995.
The company's effective income tax rate was 32 percent for the quarter,
unchanged from the prior year.
Net earnings from continuing operations were $11.5 million for the quarter
ended March 29, 1996, down $6.3 million from the prior year. Net earnings in
the three and nine months ended March 29, 1996 were negatively impacted by
lower sales volume, unfavorable exchange rates for the yen and higher spending
for research and development. Net earnings of $9 million for the nine months
ended March 29, 1996, included a charge of $13.2 million, net of tax, for
losses related to discontinued operations based in San Diego and the estimated
loss on the sale of such discontinued operations.
7 of 9
<PAGE> 8
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
The information provided under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part I concerning the
pending arbitration proceeding involving StarSight Telecast, Inc. and
concerning the pending patent infringement suit brought by the company
against StarSight Telecast, Inc. and Philips Electronics North America
Corporation is incorporated into this item by reference.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
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 March
29, 1996.
Date: May 9, 1996 /s/ Harvey A. Wagner
------------------------- -------------------------------
Harvey A. Wagner
Senior Vice President
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)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- --------------------
March 29, March 31, March 29, March 31,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 76,464 76,403 76,621 76,001
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 -- -- -- --
--------- --------- --------- ---------
NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 76,464 76,403 76,621 76,001
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 -- -- -- --
--------- --------- --------- ---------
NUMBER OF SHARES OUTSTANDING
ASSUMING FULL DILUTION 76,464 76,403 76,621 76,001
========= ========= ========= =========
NET EARNINGS (LOSS) FOR PRIMARY
AND FULLY DILUTED COMPUTATION
Continuing Operations $ 11,525 $ 17,845 $ 22,212 $ 45,361
Discontinued Operations -- (2,174) (13,210) (2,570)
--------- --------- --------- ---------
Net Earnings $ 11,525 $ 15,671 $ 9,002 $ 42,791
========= ========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE
AND COMMON EQUIVALENT SHARE
PRIMARY
Continuing Operations $ 0.15 $ 0.23 $ 0.29 $ 0.59
Discontinued Operations -- (0.02) (0.17) (0.03)
--------- --------- --------- ---------
Net Earnings $ 0.15 $ 0.21 $ 0.12 $ 0.56
========= ========= ========= =========
FULLY DILUTED
Continuing Operations $ 0.15 $ 0.23 $ 0.29 $ 0.59
Discontinued Operations -- (0.02) (0.17) (0.03)
--------- --------- --------- ---------
Net Earnings $ 0.15 $ 0.21 $ 0.12 $ 0.56
========= ========= ========= =========
</TABLE>
Note: In the three and six months ended March 29, 1996 and March 31, 1995, the
dilutive effect of equivalent shares derived from stock options was less
than 3 percent and therefore, the equivalent shares were not included in
the computation of earnings per share.
9 of 9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED MARCH 29, 1996, 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-28-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-29-1996
<CASH> 29,064
<SECURITIES> 0
<RECEIVABLES> 217,454
<ALLOWANCES> 3,460
<INVENTORY> 226,476
<CURRENT-ASSETS> 538,435
<PP&E> 208,666
<DEPRECIATION> 66,602
<TOTAL-ASSETS> 728,457
<CURRENT-LIABILITIES> 210,859
<BONDS> 2,175
0
0
<COMMON> 38,628
<OTHER-SE> 438,452
<TOTAL-LIABILITY-AND-EQUITY> 728,457
<SALES> 775,176
<TOTAL-REVENUES> 775,176
<CGS> 571,172
<TOTAL-COSTS> 571,172
<OTHER-EXPENSES> 70,666
<LOSS-PROVISION> 43
<INTEREST-EXPENSE> 573
<INCOME-PRETAX> 32,665
<INCOME-TAX> 10,453
<INCOME-CONTINUING> 22,212
<DISCONTINUED> (13,210)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,002
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
